Events in Egypt yesterday, including a large interest rate hike and comments that a disbursement of more IMF funding is close, suggest that a shift towards more orthodox policy is nearing. If a new, enhanced IMF deal is agreed, that will almost certainly result in a large devaluation of the pound, probably to 65/$, and a move to a flexible exchange rate. The central bank would deliver even more monetary tightening.
EM Drop-In: We'll be discussing EM policy easing, debt risks and the outlook for bond yields in our monthly EM drop-in on Thursday 8th February. Register here.
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