Global Monetary Policies Are Increasingly Diverging, Says S&P Report
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PARIS (Standard & Poor’s) July 28, 2015–Diverging monetary policies indeveloped countries are affecting exchange rates and prospects for foreigncapital flows to emerging markets, say Standard & Poor’s economists today inthe report: “European Monetary And Financial Roundup: Divergence Dominates Global Monetary Policies.”

At the same time, China’s structural slowdown is weighing on global trade andcommodity prices. Under the impact of these global forces, monetary policies in emerging economies are also moving in different directions.

Standard and Poor’s expects that the U.S. Federal Reserve will increase interest rates in September this year, followed by the Bank of England. By contrast, the European Central Bank and Bank of Japan have considerably eased monetary policies.

“Diverging monetary stances have implications for exchange rates in particular, with the U.S. dollar appreciating sharply against the currencies of its major trading partners,” said Standard & Poor’s senior economist Tatiana Lysenko. “We think the euro-dollar rate will fall to about $1.07 by year-end and remain in this range in 2016 and 2017. Some of the strength in the dollar reflects safe-haven flows into the U.S. in a tumultuous economic and political environment and doubts about economic prospects in the rest of the world.”

The different policy stances of major central banks are also creating an uncertain environment regarding prospects for foreign capital flows to emerging markets, the report says. So far, private nonresident inflows to emerging markets declined to about $1,000 billion in 2014 from $1,300 billion in 2013 and are likely to decrease again to $980 billion in 2015, their lowest level since 2009, according to estimates by the International Institute of Finance.

Meanwhile, world trade growth has weakened substantially. The volume of world trade contracted by 1.2% in May, following an earlier decline in April. In addition, weakness in Chinese demand and depressed global growth have knocked the prices of major commodities.

“These global forces are driving increasingly divergent monetary policy responses across emerging markets,” said Ms. Lysenko. “Over the next 18 months, we expect tightening of monetary policy in Turkey and South Africa–the countries with large external deficits that are vulnerable to a reversal in global capital flows. In Latin America, we expect both Brazil and Mexico to tighten monetary policy, albeit for different reasons.”

In contrast, the Asia-Pacific region continues to ease monetary stances, with several central banks at all-time low policy rates, and we think that the bias remains toward future easing. In Russia, we expect a further easing of monetary policy, but acknowledge the risks to this forecast from a renewed turbulence in the currency market.

The report is available to subscribers of RatingsDirect at and at  If you are not a RatingsDirect subscriber, you may purchase a copy of the report by calling (1) 212-438-7280 or sending an e-mail to Ratings information can also be found on Standard & Poor’s public Web site by using the Ratings search box located in the left column at  Alternatively, call one of the following Standard & Poor’s numbers: Client Support Europe (44) 20-7176-7176; London Press Office (44) 20-7176-3605; Paris (33) 1-4420-6708; Frankfurt (49) 69-33-999-225; Stockholm (46) 8-440-5914; or Moscow (7) 495-783-4009.

Under Standard & Poor’s policies, only a Rating Committee can determine a Credit Rating Action (including a Credit Rating change, affirmation or withdrawal, Rating Outlook change, or CreditWatch action). This commentary and its subject matter have not been the subject of Rating Committee action and should not be interpreted as a change to, or affirmation of, a Credit Rating or Rating Outlook.

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