Central banks take a dovish turn

The weakness of the latest inflation and economic activity data in many emerging markets, combined with growing expectations for looser monetary policy in the developed world, has prompted a dovish shift by many EM central banks. Policymakers in India and Egypt surprised the markets by cutting interest rates this month, while those in Turkey also loosened monetary conditions. Investors have responded to recent developments by paring back their interest rate expectations. But in most cases, our forecasts remain below those priced into financial markets.