Emerging Markets Expected to Slow Interest Rate Cuts Amid Continued Tightening by US and Major Countries

Emerging Markets Like Brazil Begin Interest Rate Cuts This Year
National Finance Center: "More Weight on Tightening Than Recent Monetary Policy Easing"
Possibility of Inflation Resurgence Increases

Although some emerging market countries such as Brazil have adopted a monetary easing stance this year, it is expected that the pace and extent of easing will likely be slow.

According to the "Emerging Market Monetary Policy Outlook and Key Variables" report by the International Finance Center on the 24th, considering the continued monetary tightening stance of major countries such as the United States and Europe (EU) and the persistently high core inflation, the speed of monetary policy easing in emerging markets may be slower than initially expected.

Over the past one to two years, major emerging markets have implemented preemptive and strong monetary tightening. Latin American countries such as Argentina (November 2020), Brazil (March 2021), and Chile (July 2021) began raising policy interest rates 8 to 16 months ahead of advanced countries like the United States (March 2022).

This year, due to easing inflationary pressures and reaching the peak of the monetary tightening cycle in emerging markets, policy interest rate cuts have been implemented. Since the second quarter of this year, Hungary (-850bp), Chile (-170bp), Vietnam (-150bp), Poland (-75bp), Brazil (-50bp), and Peru (-25bp) have initiated rate cuts for the first time since the COVID-19 pandemic. Eight countries including Indonesia, India, and Colombia have kept policy interest rates unchanged for 4 to 16 months.

However, recent key variables such as the Federal Reserve's policy rate path, the possibility of inflation resurgence due to oil-producing countries' production cuts, and downside risks to the economy stemming from China's economic instability have emerged. According to the International Finance Center, Argentina is likely to continue its tightening stance due to failure in controlling inflation, and market expectations for the peak timing of policy interest rates in Latin America have been delayed by about two quarters from the first quarter to the third quarter of this year.

In the EMEA region (Europe, Middle East, and Africa), while Eastern European countries that experienced large-scale rate hikes last year due to rising energy prices are beginning to ease monetary policy, countries such as T?rkiye, Egypt, and South Africa are likely to maintain a tightening stance due to inflationary pressures and currency depreciation.

In Asia, where China and Vietnam have led rate cuts, emerging markets have inflation rates stabilized within target ranges; however, since interest rates are already considerably low compared to other regions, changes in monetary policy stance may be limited.

The International Finance Center advised, "Given that tightening factors currently outweigh easing factors, it is important to note that prolonged high interest rates could act as a catalyst exposing the inherent vulnerabilities of emerging markets."

This content was produced with the assistance of AI translation services.