Further Monetary Easing Ahead In Emerging Markets
The Brazilian central bank’s decision to again cut interest rates on October 20 extends a trend towards monetary easing in emerging markets that we see accelerating heading into 2012.
Brazil, Russia, Indonesia, and Israel have already partially reversed prior rate hikes and since August the number of countries still tightening policy has dwindled to a mere handful – India and some frontier markets in Africa. The global economy is slowing whilst global inflation appears to be rolling over.
On a GDP-weighted aggregate basis, consumer price inflation in Brazil, Russia, India and China slipped to 6.9% y-o-y in August from what may well prove a cyclical high of 7.2% in July. With commodity prices showing clear moderation (the S&P GSCI Grains Index was up just 1.6% y-o-y as of October 20), emerging market inflation looks set to continue cooling, providing central banks with greater scope to adopt accommodative policy heading into 2012.
By our forecasts, countries representing at least 60% of global GDP will be easing monetary policy outright by the end of 2011, up from approximately 43% at present. Notable emerging markets for which we anticipate a shift to monetary policy easing in the months ahead include China, South Korea, Mexico, and Poland.
October 27th, 2011 at 12:11 pm
Agreed!
What’s up with Brazil? Have they gone mad? How many more rate cuts are feasible, in your view?