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Fed: What's the rush to hike rates - BAML

FXStreet (Delhi) – Research Team at BAML, note that the Fed's decision to delay liftoff supports their view that EM rates will remain low for some time.

Key Quotes

“Oil prices have dropped 22% since early July, and although commodities have been stable in September, the cumulative loss amounts to 14% in the last three months. Weak EM growth (running, on average, at 60-80bp below potential) and lower commodity prices should keep inflation contained, providing more room for EM central banks to either cut rates or stay on hold, even after the Fed hikes.”

“Even though the Fed rather than China dominated the headlines during September, we believe the Chinese puzzle is far from being solved. In August, China's FX reserves saw their largest monthly decline on record. Although a significant part of the decline was due to FX valuation effects, it does show heightened capital outflow pressures after the introduction of greater CNY flexibility in August.”

“Capital outflow is not the only issue China faces. The weakening of its manufacturing and industrial sectors has persisted and the concerns of a hard landing are as present as ever.”

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