The path of monetary policy normalisation in EM EMEA: The MUFG Global Markets Podcast

A broad economic recovery across emerging markets (EM) in EMEA is being delayed by the Q1 winter speed bump, with a resurgence in COVID-19 cases across parts of the region, the emergence of more contagious strains and a return of mobility restrictions in nearly all countries.

The inflation outlook though is a different story, according to Ehsan Khoman, Head of Emerging Markets Research (EMEA). After a bottoming out of price pressures in 2020, he forecasts increasing supply-side inflation risks, in particular in EM high yielders, combined with a strong rebound in global commodity prices.

The result is likely to be tighter monetary conditions, especially with interest rates at record lows in most EMs. With initial signs of policy normalisation within EM beginning to resurface in a few markets, this poses a hurdle against any chase for carry.

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