The long awaited Fed rate hike will come to end soon as it is set to hike at tomorow meeting. The Fed rate hike will worry the emerging economies. In addition to poor economic outlook, the EMs are having large current account deficits. Therefore, the EMs are worried that the tightening cycle will further widen their current account deficits.
As per IMF's estimation, by end of 2015, the current account deficits of large EMs like Colombia, Turkey, South Africa, Brazil, Egypt, Saudi Arabia, Kazakhstan and Venezuela will be more than 3% of GDP, notes Nordea Bank. However, Emerging Asian economies are having current account surplus.
Moreover, Fed's tightening monetary policy may weaken the EM currencies further, and thereby managing exchange rate will be tough task for the central banks.
