Fed hike signals US economy back on track, may hurt EMs – Moody’s

FXStreet (Mumbai) - While the US Federal Reserve rate increase by 0.25% will not have a significant impact on interest rates or currencies in developed countries, some emerging markets (EM) will have troubles to handle a rise in borrowing costs, Moody's said in a fresh report released on Thursday.

Key Quotes from the report:

The Fed rate hike "would reinforce our view that the US economy is on track for above trend growth, likely to reach a cyclical peak in 2016."

"The effect on average US federal government (Aaa stable) borrowing costs should be minimal in the short-term, although T-bill rates may rise, and yields on short-term T-notes may also increase. At that point, a move to longer maturities in Treasury issuance may occur."

"The US dollar may strengthen further, hitting the profits of US corporates that derive income from abroad and also exports. On a trade-weighted basis, the dollar has already strengthened fairly steeply this year and is about 16% above its level a year ago."

"They (commodity currencies) are likely to remain under pressure, but by itself a small rise in US rates should not cause major moves."