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The global interest rate tide is clearly turning. Of the major developed and emerging markets that IGM tracks, only one developed (Norway) and four emerging (Russia, Brazil, Chile and Korea) are currently projected to cut rates even further. The question now occupying investors, our analysts and the market is the timing and degree of tightening cycles.
Monthly Interest Rate Outlook April 2017
Although Emerging Asia has been braced for the pace of US rate hikes to accelerate, IGM’s Jian Hui Tan argues that the impacts are likely to be milder than many expect. Stable regional politics, one less US rate hike that is currently predicted and strong domestic demand in key markets should all contribute to a smoother ride for Emerging Asian assets than is currently predicted.
One Asian market where our interest rate outlook has shifted significantly is India. While we see little chance of an immediate hike we believe the inflationary impacts of a new, national sales tax system and the likelihood of further hikes in the key US rate have increased the odds that India’s central bank will start tightening this year.
The formal triggering of the Article 50 process to exit the European Union has not changed our interest rate forecasts for the UK, and technical analysis of 10-year Gilts shows their recent challenge to the three-year trend of falling yields has faltered. But inflationary pressures may challenge those assumptions in the second quarter.
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