EM central banks shift to easing mode

Having been in tightening mode at the end of 2014, a number of EM central banks have surprised markets by loosening monetary policy since the start of the year, with policymakers in Romania, India, Egypt and Peru all cutting interest rates. With the drop in oil prices putting downward pressure on inflation in many EMs, and growth prospects still weak, EM central banks look more likely to cut rather than hike rates in the coming months. That said, we are not expecting to see big falls in interest rates across the EM world as a whole this year. For most countries in Emerging Europe we expect monetary policy to be left on hold this year. In Emerging Asia, a sharp drop in inflation has led us to push back the timing of rate hikes we originally had pencilled in for 2015. Finally, although we are anticipating further loosening in some parts of Latin America, rate cuts are likely to be gradual, while Brazil actually looks set to hike rates this year amid continued worries over inflation. Nevertheless, for EMs as a whole, monetary policy in 2015 now looks set to be looser than it was just a few months ago.