Not the time to let our guard down

Positive surprises

In line with the better-than-expected economic performance in advanced economies this year, emerging markets, in general, have seen their growth forecasts being revised upwards.

Also, the fastest tightening cycle in decades proved manageable for many emerging markets. It helped that emerging markets monetary authorities, before rate hikes started in the US, undertook timely proactive rate increases and accumulated higher stocks of international reserves. The major central banks are still on the cautious side in their communication, however. They have the complicated task of balancing the risk of tightening monetary policy too much and hurting their economies unnecessarily against the risk of tightening too little and being unable to meet their inflation targets. We expect the Fed to have ended its rate hike cycle and we have pencilled in one additional rate hike for the ECB. As the end of interest rate hikes in the US and eurozone appear to be nearing and inflation pressures subsiding, a few emerging market central banks even cut their rates, including Chile, Brazil, Georgia and Kazakhstan.

And finally, there is improved confidence in low-income countries engaging in new IMF programmes.