What the Fed’s easing cycle means for EMs

The Fed’s upcoming monetary easing cycle will probably provide less of a tailwind to EMs than is widely thought. While it’s likely to give some central banks (such as in the Gulf, Mexico and Indonesia) a green light to lower interest rates, EM rate decisions have been driven increasingly by domestic rather than external developments. A potential increase in capital flows will be positive for those EMs with balance of payments problems, although these are comparatively rare now.