Emerging Market Monetary Policy Dilemmas: Stagflation, Currency Depreciation, and Deflation

  • EM monetary policy will have a hawkish bent in 2016, owing to inflation risks stemming from extreme currency weakness.
  • Brazil, Nigeria, South Africa and Turkey are stuck in a stagflationary dilemma. Nigeria, South Africa and Turkey will hike interest rates from current levels by end-2016.
  • Chile, Egypt, Mexico, Saudi Arabia and the United Arab Emirates will raise rates through 2016 against a relatively positive economic backdrop.
  • In Asia, growth concerns predominate. China, India and Indonesia will cut rates through 2016.
  • Inflation is extremely subdued in Central and Eastern Europe. There is a growing probability that CEE central banks will restart rate-cutting cycles, although this is not our core scenario.

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