NEW YORK (S&P Global Ratings) Feb. 18, 2025--S&P Global Ratings today revised its policy rate forecasts for nine key emerging markets following a recent change in its policy rate forecast for the U.S.
Across those nine emerging markets--Brazil, Chile, Colombia, Hungary, Mexico, Peru, Saudi Arabia, South Africa, and Turkiye--the median shift in our rate forecasts (for the end of 2025 and the end of 2026) is a shift up by 50 basis points (bps).
The interest rate differential between emerging markets and the U.S. is a key driver of capital flows, and we now expect just one 25-bp rate cut from the Federal Reserve this year, compared with three 25-bp cuts in our previous forecast (see "The Fed Is In Limbo," published Jan. 30, 2025). Capital flows influence exchange rates and, as a consequence, observed and expected inflation.
Central banks in many key emerging markets have been lowering their policy rates for more than a year. We now expect these central banks to be cautious about cutting rates, to prevent a rapid narrowing of their countries' interest rate differentials with the U.S.
There are two outliers in the changes we've made to our rate forecasts: Brazil and Turkiye.
- Brazil's central bank has hiked interest rates instead of cutting them like most other central banks, and it has been more aggressive than we anticipated. This is because of rising inflation expectations: The latest central bank survey had inflation expectations 12 months out at 5.6%, well above the 4.5% upper boundary of the target range. We now see the benchmark SELIC rate ending 2025 at 14.75%; it's currently at 13.25%.
- Turkiye's central bank started lowering rates earlier than we anticipated, with inflation continuing to moderate. (It slashed rates by 250 bps in December.) The adjustment to our policy rate forecast for Turkiye reflects that, and we expect more rate cuts at the central bank's upcoming meetings since it's in the early stages of its monetary policy normalization process.
For emerging markets in Asia, our policy rate forecasts are unchanged. So far, central banks in that region's emerging markets have cut rates only modestly.
S&P Global Ratings believes there is a high degree of unpredictability around policy implementation by the U.S. administration and possible responses--specifically with regard to tariffs--and the potential effect on economies, supply chains, and credit conditions around the world. As a result, our baseline forecasts carry a significant amount of uncertainty. As situations evolve, we will gauge the macro and credit materiality of potential and actual policy shifts and reassess our guidance accordingly (see our research here: spglobal.com/ratings).
We also adjusted our exchange rate forecasts for several emerging markets, but in most cases, the changes are small. This is because, under our revised interest rate forecasts, the interest rate differentials with the U.S. would remain broadly unchanged. In some cases, the main driver of the changes to our forecasts was weaker-than-expected or stronger-than-expected performance in the last few months amid high levels of volatility.
For emerging markets in Asia, our exchange rate forecasts are broadly unchanged.
| S&P Global Ratings' policy-rate and exchange-rate forecasts for several emerging markets | ||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Policy rates, end of period | ||||||||||||||||||||
| --(%)-- | --Change from Nov 2024 baseline forecast (bps)-- | |||||||||||||||||||
| 2023 | 2024 | 2025f | 2026f | 2027f | 2024 | 2025f | 2026f | 2027f | ||||||||||||
| Brazil | 11.75 | 12.25 | 14.75 | 12.50 | 9.00 | 50 | 350 | 300 | 0 | |||||||||||
| Chile | 8.25 | 5.00 | 4.50 | 4.50 | 4.50 | 0 | 50 | 50 | 50 | |||||||||||
| Colombia | 13.00 | 9.50 | 8.50 | 7.75 | 7.00 | 25 | 50 | 25 | 0 | |||||||||||
| Mexico | 11.25 | 10.00 | 8.75 | 7.75 | 7.00 | 0 | 25 | 25 | 0 | |||||||||||
| Peru | 6.75 | 5.00 | 4.50 | 4.50 | 4.50 | 0 | 50 | 50 | 50 | |||||||||||
| Hungary | 10.50 | 6.50 | 4.75 | 3.50 | 3.00 | 25 | 50 | 50 | 0 | |||||||||||
| Poland | 5.75 | 5.75 | 5.00 | 3.25 | 3.00 | 0 | 0 | 0 | 0 | |||||||||||
| Turkiye | 45.00 | 47.50 | 32.50 | 20.00 | 15.00 | (250) | (250) | 0 | 0 | |||||||||||
| Saudi Arabia | 6.00 | 5.00 | 4.25 | 4.00 | 3.50 | 0 | 75 | 50 | 0 | |||||||||||
| South Africa | 8.25 | 7.75 | 7.25 | 6.50 | 6.00 | 0 | 50 | 50 | 0 | |||||||||||
| Exchange rates versus U.S. dollar, end of period | ||||||||||||||||||||
| --Change from Nov 2024 baseline forecast (%)*-- | ||||||||||||||||||||
| 2023 | 2024 | 2025f | 2026f | 2027f | 2024 | 2025f | 2026f | 2027f | ||||||||||||
| Brazil | 4.84 | 6.19 | 5.90 | 5.85 | 5.85 | (9.5) | (4.2) | (3.4) | (5.1) | |||||||||||
| Chile | 885.00 | 992.00 | 980.00 | 980.00 | 980.00 | (1.7) | 0.0 | 0.0 | 0.0 | |||||||||||
| Colombia | 3,822.00 | 4,409.00 | 4,400.00 | 4,450.00 | 4,450.00 | (0.2) | 0.6 | 0.0 | 0.0 | |||||||||||
| Mexico | 16.92 | 20.27 | 21.00 | 21.25 | 21.25 | 1.1 | 0.0 | 0.0 | 0.0 | |||||||||||
| Peru | 3.71 | 3.76 | 3.80 | 3.80 | 3.80 | 1.1 | 2.6 | 2.6 | 2.6 | |||||||||||
| Hungary | 355.20 | 382.00 | 386.75 | 391.60 | 394.24 | (1.3) | (2.2) | (2.2) | (3.0) | |||||||||||
| Poland | 4.15 | 4.04 | 4.10 | 4.00 | 3.95 | (1.0) | (1.2) | 0.0 | 0.0 | |||||||||||
| Turkiye | 30.00 | 34.50 | 42.00 | 47.00 | 52.00 | 1.4 | 0.0 | 0.0 | 0.0 | |||||||||||
| Saudi Arabia | 3.75 | 3.75 | 3.75 | 3.75 | 3.75 | 0.0 | 0.0 | 0.0 | 0.0 | |||||||||||
| South Africa | 18.80 | 17.90 | 18.40 | 18.60 | 18.80 | (1.1) | (2.7) | (2.2) | (2.1) | |||||||||||
| Exchange rates versus U.S. dollar, annual average | ||||||||||||||||||||
| --Change from Nov 2024 baseline forecast (%)*-- | ||||||||||||||||||||
| 2023 | 2024 | 2025f | 2026f | 2027f | 2024 | 2025f | 2026f | 2027f | ||||||||||||
| Brazil | 5.00 | 5.39 | 5.80 | 5.85 | 5.85 | (1.1) | (3.1) | (3.4) | (4.3) | |||||||||||
| Chile | 840.00 | 944.00 | 985.00 | 980.00 | 980.00 | 0.3 | (0.7) | 0.0 | 0.0 | |||||||||||
| Colombia | 4,327.00 | 4,072.00 | 4,350.00 | 4,425.00 | 4,450.00 | 0.3 | 1.5 | 0.2 | 0.0 | |||||||||||
| Mexico | 17.74 | 18.33 | 20.75 | 21.15 | 21.25 | 0.7 | 0.0 | 0.0 | 0.0 | |||||||||||
| Peru | 3.74 | 3.75 | 3.78 | 3.80 | 3.80 | 0.3 | 2.8 | 2.6 | 2.6 | |||||||||||
| Hungary | 353.09 | 365.37 | 385.27 | 385.37 | 392.26 | (0.3) | (1.6) | (1.4) | (2.3) | |||||||||||
| Poland | 4.20 | 3.98 | 4.12 | 4.01 | 3.97 | (0.3) | (0.7) | 0.0 | 0.0 | |||||||||||
| Turkiye | 24.73 | 32.83 | 39.38 | 44.00 | 50.06 | 0.4 | 0.0 | 0.0 | 0.0 | |||||||||||
| Saudi Arabia | 3.75 | 3.75 | 3.75 | 3.75 | 3.75 | 0.0 | 0.0 | 0.0 | 0.0 | |||||||||||
| South Africa | 18.50 | 18.42 | 18.18 | 18.52 | 18.70 | (0.3) | (1.9) | (2.3) | (2.9) | |||||||||||
| *A negative number means a weaker exchange rate versus the U.S. dollar, and vice versa. f--S&P Global Ratings' forecast. bps--Basis points. Sources: Haver Analytics and S&P Global Ratings. | ||||||||||||||||||||
The views expressed here are the independent opinions of S&P Global Ratings' economics group, which is separate from but provides forecasts and other input to S&P Global Ratings' analysts. S&P Global Ratings' analysts use these views in determining and assigning credit ratings in ratings committees, which exercise analytical judgment in accordance with S&P Global Ratings' publicly available methodologies.
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| Chief Economist, Emerging Markets: | Elijah Oliveros-Rosen, New York + 1 (212) 438 2228; elijah.oliveros@spglobal.com |
| Media Contact: | Alexis Weakley, New York; alexis.weakley@spglobal.com |
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