Chart of the Week #1 - EM Central Banks

Emerging market central banks pivot to rate hikes

Jul 15, 2021

Chart of the Week: EM Central Banks turn the corner

As of my latest count, almost 40% of Emerging Market central banks have shifted into rate hike mode (i.e. their last interest rate move was an increase). This marks a clear pivot from the historic global monetary easing efforts of 2020.

All up, my running Year To Date count is 29 rate hikes across 19 central banks. I’ve been documenting the progression of rate hikes across the world in an ever growing Twitter thread here.

My view is what we are seeing is smaller/developing central banks hiking rates first as they are most sensitive to the uplift in inflation sweeping the globe. Progressively the more mainstream EM central banks have also pivoted, particularly as a bout of EMFX weakness has piled on.

I think there’s basically two main implications of this - firstly it serves as a sign of things to come for developed market central banks (e.g. the Bank of Canada tapering asset purchases, the RBNZ ending QE, and Norway looking at rate hikes near term).

Secondly, just as there are unintended consequences of easing, there could end up unintended consequences of tightening should rate hikes become more widespread and more material. What particularly comes to mind is the debt overhang from the fiscal policy response to the pandemic.

Something to keep in mind, and a key trend to monitor.

Best regards,

Callum Thomas
Founder & Head of Research at Topdown Charts