Emerging Markets Rally as Federal Reserve Decision Looms

Emerging market equities rose on Wednesday, driven by gains in Taiwan and India. The MSCI's index for emerging market stocks added 0.3%. Investors await the Federal Reserve's interest rate decisions. Central banks in Hungary and Indonesia made policy moves amid subdued currency performance in Central Eastern Europe.

Emerging market equities rose on Wednesday, lifted by stock markets in Taiwan and India, while most currencies steadied as investors awaited more cues on the Federal Reserve's interest rate trajectory.

The MSCI's index for emerging market stocks added 0.3%, inching back towards a more-than-two-year high hit earlier this week. Shares in Taiwan closed 1.5% higher, touching a record high on an intraday basis, while India's benchmark stock index was last up 0.3%, with IT stocks among gainers.

Most currencies traded in tight ranges as investors refrained from making big bets in the absence of major catalysts and cautionary commentary from Fed officials regarding monetary policy. Two Fed officials said they still expect inflation to continue to decline, but feel the process will take time and central bankers will need to be patient in deciding when it is time to cut interest rates.

"With volatility relatively low, it seems to suggest that investors will comfortably go back into carry again, which for some emerging markets means that their currencies are going to appreciate quite significantly once again," said Michael Metcalfe, head of macro strategy at State Street Global Markets. "Unless there's a really bad inflation shock in the U.S., then rates are either going to stay where they are, or expectations for cuts will come back."

Minutes from the Fed's last policy meeting are due later in the day. In Central Eastern Europe, most currencies were subdued with Hungary's forint down 0.2% a day after its central bank cut its base rate by another 50 basis points.

South Africa's rand depreciated 0.5% against the dollar after data showed headline consumer inflation slowed for the second month in a row in April. The local stock index was flat with general elections scheduled to be held next week.

Chinese shares had a muted close while the yuan was last at 7.23 per dollar, hovering near a three-week low. China's central bank has guided some commercial banks to accelerate the pace of lending in May, four sources with knowledge of the matter said, after broad credit growth in April hit a record low.

Elsewhere in emerging markets, Indonesia's central bank held interest rates unchanged, as expected. The rupiah was last at 15990 per dollar. HIGHLIGHTS:

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