EM central banks pause for breath

Emerging market policymakers have been in tightening mode over the past year, but this reversed last month. Our EM interest rate diffusion index shows that more EM central banks cut rates than hiked in April – the first time in ten months that this has happened. A handful of EMs, notably Turkey, Hungary and Ukraine cut rates last month. At the same time, for many EMs that were in the middle of tightening cycles (mainly commodity producers), recent dips in inflation and soft economic data prompted central banks to postpone rate hikes. However, we think this is likely to be a temporary pause, and at an aggregate level, rate hikes in EMs are likely to outnumber rate cuts over the remainder of the year.