June 15 (Reuters) – Emerging market stocks were at four-month highs on Thursday, boosted by hopes of more policy stimulus from China to support its struggling economy, while currencies were subdued after the U.S. Federal Reserve’s ‘hawkish pause’ propped up the dollar.
The MSCI index of emerging market equities .MSCIEF rose 0.7% by 0841 am GMT as China’s weak industrial output and retail sales growth in May boosted expectations that Beijing will need to do more to shore up a shaky post-pandemic recovery.
China has already ramped up stimulus measures in recent days, with its central bank on Thursday lowering the borrowing cost of its medium-term policy loans for the first time in 10 months.
China’s blue-chip stocks gained 1.6% and Hong Kong’s Hang Seng index .HSI rallied 2.2%, while the yuan CNY=CFXS erased early losses to edge 0.1% higher.
Broader emerging market currencies .MIEM00000CUS were down 0.06% as the dollar =USD firmed after the Fed on Wednesday left interest rates unchanged but signaled that borrowing costs may still need to rise by as much as half of a percentage point by the end of this year.
“The pause in rate hikes was widely expected and communicated, and over the past weeks, there were strong hints to the possibility of new rate rises,” said Paolo Zanghieri, senior economist at Generali Investments.
“What surprised in the June meeting was the possible extent of such an increase.”
The European Central Bank (ECB) is widely expected to hike rates by 25 basis points later in the day.
The Turkish lira TRYTOM=D3 slipped to 23.67 against the dollar after having steadied on Wednesday.
Turkish home sales fell 7.7% year-on-year in May, data showed on Thursday.
The Polish zloty EURPLN= was flat against the euro, while shares in Poland’s banking sector .BNKI fell 2.3% after the European Union’s top court backed consumers in a foreign currency mortgage case.
In other news, Nigeria’s central bank moved to liberalize foreign exchange trading on Wednesday, capping a dramatic day that saw the official Naira rate devalued by more than a third.
The International Monetary Fund on Thursday expressed dissatisfaction with Pakistan’s recently presented budget in a blow for the cash-strapped country.
(Reporting by Amruta Khandekar; Editing by Sohini Goswami)
