Notwithstanding the recent, relatively more benign mood in the financial markets, economic costs for emerging market economies appear to be on the rise, reflecting the implementation of more stringent measures to halt the spread of the disease. To support economic activity, emerging market governments undertook a range of monetary and fiscal policy actions in the last two weeks. On the monetary side, Turkey cut borrowing costs by twice as much as predicted by investors; Mexico slashed its key rate in an emergency meeting; the Ukrainian central bank lowered rates below 10% and the Russian central bank cut its benchmark lending rate by 50 basis points to 5.5%, their respective lowest levels in six years. As for fiscal measures, the most striking example comes from South Africa, which announced an additional package of USD26bn (10% of GDP). However, markets reacted negatively to the majority of these announcements, a potent reminder that economic authorities in emerging economies are relatively more constrained in sutilising economy policy tools to mitigate the effects of the crisis.
Emerging and frontier market sovereigns and banking systems continued to suffer from rating downgrades or outlook changes. In the last two weeks, Moody's changed the banking system outlooks of South Africa, Nigeria, Morocco, Brazil, Colombia, Paraguay, Panama and Uruguay from stable to negative, quoting an expected rise in non-performing loans and a protracted decline in banks' profitability. On a positive note, Moody's assessed the liquidity positions of those banking systems (in both domestic and foreign currency) as resilient, given the support provided by the respective Central Banks. Nigeria is the only noted exception.
2. For more details and exact wording see https://www.ecb.europa.eu/press/pr/date/2020/html/ecb.pr200422_1~95e0f62a2b.en.html