Key Takeaways 

  • 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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