Ramping up rates: Emerging central banks feel inflation pain

LONDON (Nov 3) - Finding themselves at the sharp end of a global inflation shock, emerging market central banks are expected to raise interest rates at a pace not seen in more than a decade -- moves bound to aggravate debt problems and hurt equity markets.

Soaring price pressures have seen rate hike expectations shift up even for central banks in the United States, Australia and Britain. The subsequent rise in global borrowing costs will be highly unwelcome to developing countries, many of which are struggling to return to pre-pandemic economic output levels.

Battling soaring food and energy costs, many emerging central banks are already in aggressive rate-hike mode.

And as policy tightening expectations rise for the United States, Britain and other advanced nations, money markets are wagering emerging markets will have to ramp up the hiking pace.

“Many emerging markets are in an increasingly difficult spot," said Manik Narain, head of emerging market strategy at UBS, pointing to expectations that the current inflation shock would prove to be far more permanent in developing economies than in the United States or Europe. “Markets are pricing in a much faster tightening cycle in emerging than in developed markets, it's a difficult balancing act."

Reuters