For the most part, EMs are well placed to withstand rising US interest rates, but there are pockets of vulnerability where external financing needs are significant. Among the large EMs, Turkey (unsurprisingly) stands out, and current account risks are underappreciated in some parts of Latin America and Eastern Europe. In the meantime, rising rates in the US are likely to feed through to tighter monetary conditions in those EMs that have dollar pegs (e.g. the Gulf, Hong Kong), follow the Fed closely (Mexico) or are at an early stage of their hiking cycles (South Africa). This report is part of a research series exploring what higher interest rates will mean for economies and financial markets.
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