A significant number of EMs that were running large current account deficits last year – including much of Central and Eastern Europe (CEE), Peru and Chile – have seen dramatic improvements in their external positions. That limits the downside risks to their currencies and provides more room for their central banks to lower interest rates. But there are a handful of countries where deficits remain sizeable (particularly Turkey, Colombia and Romania), leaving them vulnerable to a slowdown in capital inflows.
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