Deutsche Bank Analyst Expects US Fed to Delay Rate Hike, Positive for Emerging Markets

Strategic Insights -

As the US Federal Reserve prepares for its upcoming policy meeting, Deutsche Bank's Head of Asia Credit Research, Harsh Agarwal, believes that the Fed will not raise interest rates this week, in line with market consensus. According to Agarwal, the Fed will likely delay the rate hike until October, as the US economy is in good shape, but global volatility and concerns over China's slowdown will influence the decision. The delay in rate hikes will likely lead to a relief rally in emerging market currencies, particularly in the rupee, which is expected to remain stable in the range of 66-67 for the next 6-12 months.

Key Takeaways:

  • Deutsche Bank's house view is that the Fed will not raise interest rates this week, in line with market consensus.
  • The rate hike is expected to happen in October, as the Fed will prioritize the US economy's good shape over global concerns.
  • A delay in rate hikes will likely lead to a relief rally in emerging market currencies, particularly in the rupee.
  • Agarwal expects the rupee to remain stable in the range of 66-67 for the next 6-12 months.
  • Emerging market assets, such as the Indonesian rupiah and Malaysian ringgit, are expected to weaken due to foreign capital outflows.
  • A rate hike by the Fed will likely lead to dollar strengthening, applying pressure on EM FX, particularly in the rupiah and ringgit.
  • Agarwal believes that Asia will still outperform the global EM FX pool in every asset class.

Statistics:

  • Probability of Fed raising interest rates: 30% (as of the interview date)
  • Probability of Fed not raising interest rates: 70% (as of the interview date)
  • Deutsche Bank's forecast for RMB end-of-year value: 6.4
  • Deutsche Bank's target for Chinese equity market: higher than current levels
  • Foreign capital ownership in Indonesian bond market: 40-50%
  • Foreign capital ownership in Malaysian bond market: 40-50%
  • Deutsche Bank's forecast for rupee value: 66-67 for next 6-12 months

Sources:

  • Interview with Harsh Agarwal, Head of Asia Credit Research, Deutsche Bank, on ET Now
  • Deutsche Bank's research reports, specific sources not provided in the original material
  • Times Content, for reprint rights
  • ET Now, for the interview with Harsh Agarwal