Tightening cycles have been a key feature of 2022 across the emerging world, but the end is in sight as we enter 2023. Some EM central banks that began tightening early – for example Brazil, Chile and Czech Republic – have already brought an end to hiking cycles. Others in Latin America and Emerging Europe look set to follow imminently. Policymakers in Asia have also turned less hawkish and/or slowed the pace of rate hikes, and tightening cycles there are also in their final stages. Looking ahead, EMs tend to switch from monetary tightening to loosening fairly quickly and, while high inflation will prevent rate cuts in the immediate term, the conditions for easing policy could be in place in lots of EMs by the middle of 2023, sooner than in DMs. That said, we don’t think interest rates will be lowered as far as most analysts are currently expecting.
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