Indonesia cut rates on Thursday but the move was unexpected and possibly the last for some time. Brazil has also signalled that rate cuts will continue. But South Korea and Poland held rates steady this week and made hawkish noises. Peru and Chile will probably do the same.
The culprit that’s spoiling the party is of course inflation. Expectations that slowing growth will wipe out remaining price pressures have largely failed to materialise, leaving policymakers in a bind. Tensions over Iran could drive oil prices higher. Growth seems to be looking up in the United States.
On top of that, all the major central banks in the developed world are intent on flooding the world economy with cash and some of it will inevitably make its way to emerging nations. So while economies could do with a good dose of policy easing, most central banks cannot afford to let their guard down on inflation.
Take China where January inflation came in well above expectations on Thurday, with food prices up 10.5 percent on the year. Expect no cuts to the policy rate this year, warn analysts at RBC. Over in Seoul, Bank of Korea governor Kim Choong-soo said policymakers needed to be “on alert” for inflation risks and described inflation expectations as “considerably high.” The verdict from Barclays: