Fitch Ratings expects the rate-cutting cycle launched by the Fed’s 50bp cut in September to be modest compared with historical cycles. However, we still expect to see 25bp rate cuts by the Fed in November and December, and 100bp of cuts in 2025.

We also expect the ECB to cut rates by 25bp in December, and by 100bp in 2025. Lower rates in key developed markets should reduce global benchmark borrowing costs, easing liquidity and funding conditions for EM borrowers, particularly those with high dependence on foreign-currency debt. However, for many borrowers marginal borrowing rates in 2025 may still be higher than their current effective cost of borrowing, implying overall interest costs could still rise.

Looser US monetary policy should create additional space for domestic monetary easing in many EMs – particularly in those economies whose currencies are managed against or pegged to the US dollar. This will provide support to EM economic growth prospects, as well as reducing repayment burdens for those issuers that have borrowed on domestic debt markets. Nevertheless, lower rates may hit net interest margins and earnings for EM banks, depending on individual banks’ sensitivity to interest-rate movements.