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Emerging Markets

Emerging Markets Economics Update

EMs stepping up to support currencies

A handful of EM central banks have ramped up FX sales to provide support to weakening currencies over the past couple of months. And with inflation high and the US dollar likely to strengthen further, others could follow suit. FX intervention is unlikely to prevent further depreciation, but central banks with healthy FX reserve buffers may have some success in slowing the pace of currency falls. In view of the wider interest, we are also sending this Emerging Markets Overview Update to clients of our FX service.

24 June 2022

Emerging Markets Economics Chart Book

High inflation to keep central banks in tightening mode

Having surged in recent months, there are some tentative signs that EM inflation is nearing a peak. Our measure of aggregate EM inflation was steady at 7.0% y/y between April and May and some indicators of pipeline price pressures have eased. But even so, our aggregate measure is running at its highest rate since 2008 and, even when inflation does fall back, it’s likely to remain well above many EM central banks’ targets for some time. Against this backdrop, most EM central banks are likely to tighten monetary conditions further. Indeed, we generally expect more rate interest rate hikes than most analysts do over the next 12-18 months. Asia Drop-In (30th June, 09:00 BST/16:00 SGT): Are Asia’s central banks behind the curve? Can the Bank of Japan and People’s Bank of China continue to go against the grain? Find out in our special session on what global monetary tightening looks like in Asia. Register now.  

23 June 2022

Emerging Markets Economics Update

EMs, food security and inflation

Shortages of food supplies and surging prices have led some EMs to impose export restrictions on key agricultural products, a trend that threatens to become more prevalent and serve to keep prices elevated and inflation high. Some EMs are also attempting to cushion the impact of higher food prices on household spending by ramping up subsidies. But that will entail significant fiscal costs which in some places isn’t sustainable, notably North Africa. World with Higher Rates - Drop-In (21st June, 10:00 ET/15:00 BST): Does monetary policy tightening automatically mean recession? Are EMs vulnerable? How will financial market returns be affected? Join our special 20-minute briefing to find out what higher rates mean for macro and markets. Register now

16 June 2022

Our view

Weakness in China and spillovers from the war in Ukraine will slow the EM recovery and growth is likely to be weaker than most expect. Recession risks are rising in Emerging Europe in particular. On the flipside, commodity producers in the Gulf and parts of Latin America are likely to outperform this year. Elevated energy and food prices will keep EM inflation at multi-year highs throughout the year and policymakers in Latin America and Emerging Europe will raise interest rates by more than most expect.