Emerging market (EM) central banks continue to inch towards monetary easing and, while individual circumstances will increasingly dictate the starting point and pace of cuts, a pan-EM easing cycle is likely to emerge only slowly, around Q2 2024, rather than early in the year as we had thought.

Uncertainty about food and energy price pressures, and risks associated with several countries heading to the polls seem set to add to central bank caution. 

Indeed, a busy election year raises the possibility that governments turn to fiscal stimulus, potentially reducing the scope or need for monetary easing. And while external pressure from the market’s assessment of the likely path for US rates – which swung dramatically towards easing from November – has fallen, the risk of a Trump presidency will likely drive further volatility in EM asset prices.

That said, we expect further falls in headline and core inflation to make it very hard for EMs to continue to justify a restrictive stance. Indeed, high frequency measures of underlying inflation are already running close to target-consistent rates among the major EMs. Absent a reacceleration, year-over-year core inflation will converge with targets. 

As growth concerns usurp inflation risks and DM central banks start easing, we expect a pan-EM easing cycle to begin around Q2 2024.

 

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