Now that central banks in Asia have also started to deliver cuts, we believe an emerging market (EM) easing cycle is conclusively in progress.

And the scope for EM central banks to ease policy further will increase as the Federal Reserve continues to lower rates.

Headline inflation has returned to target in most EMs, however, in some economies underlying inflation measures – particularly services – remain too hot, and this will cap the extent to which policy rates can be cut. 

Moreover, inflation risks are skewed to the upside, with ongoing conflicts in Europe and the Middle East threatening food and energy supplies, and the potential for a more inflationary policy mix under the next US administration.

The recent Chinese policy pivot could also provide a boost for its trading partners, potentially adding to a more inflationary US policy mix. But it remains unclear whether the Chinese Communist Party (CCP) really intends to move its growth model away from investment, even in the near-term.

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