Fed quake: Who will bear the BRuNTS?

The Federal Reserve (Fed) will raise interest rates and tighten its monetary policy by the end of 2015. Compared to previous tightening cycles, communication has been more transparent for anticipations to be better managed. This telegraphed tightening cycle will be gradual.

Financial instability in Emerging Markets running large current account deficits will increase as a consequence of capital outflows and higher cost of financing in USD. However, Collective Crashes � la 1990s should be avoided as abundant global liquidity and foreign exchange reserves make them more resilient to external shocks.

Selective shocks are still likely, shaving off between 0.2 and 0.5pps of GDP growth in some countries. The BRuNTS (Brazil, Russia, Nigeria, Turkey and South Africa) are the most vulnerable with weak underlying growth drivers and constrained policy-making. The MIMiCC (Mexico, Indonesia, Malaysia, Colombia and Chile) should experience a rough 6 months due to lower revenues from commodities and strong reliance on short-term capital inflows. Last, the CIPPeT (China, India, Poland, Philippines and Thailand) should be relatively spared.