A spell of relative calm for EM currencies was broken this month, as several including the Argentine peso, Turkish lira, Brazilian real and South African rand fell sharply, despite a more dovish US Fed. This weakness can partly be pinned on domestic events, but concerns about the health of the global economy have also hit risk appetite. Both the Turkish and Argentine central banks have taken steps to tighten monetary conditions. But elsewhere low inflation makes policy responses unlikely. Indeed, we think the general direction for EM monetary policy this year is still likely to be towards interest rate cuts.
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