Emerging Markets Face Profitability Challenges Rate Cuts On Horizon: Jahangir Aziz

Emerging markets are facing a challenging profitability landscape, amid ongoing rate cuts from central banks worldwide, said Jahangir Aziz, head of emerging markets economics research and commodities, JPMorgan.

Aziz discussed the broader implications of Chinese economic policies, which have resulted in falling export prices due to internal deflation. This has potential spillover effects for other emerging markets, particularly India, as the competitive landscape shifts, he said at the JPMorgan India Investor Summit.

Recent rate cuts by major global players, including a 50 basis point reduction by the US Federal Reserve, have reshaped the outlook for Asian central banks, he said. While traditionally hesitant to lower rates due to inflation concerns, Aziz emphasised that the scenario has changed. With core inflation in India at its lowest since 2012, there is growing pressure for the Reserve Bank of India to recalibrate its monetary policy.

While the RBI has historically claimed independence from the Fed's influence, the reality is that global financial conditions do impact local economies, he said. With significant excess capacity and weakening demand in India, the domestic economy may soon necessitate a shift from restrictive interest rates to a more neutral stance.

Aziz also expressed concern about the Indian government’s recent decisions regarding long-term debt instruments, which could deter foreign investment. Maintaining avenues for long-term investment is critical for economic stability and growth, he said.