Important information

The information contained in this website is intended strictly for sophisticated institutions.

The information contained in this website, does not constitute and should not be construed as an offer of, invitation or proposal to make an offer for, recommendation to apply for or an opinion or guidance on a financial product, service and/or strategy. Whilst great care has been taken to ensure  that  the  information  contained  in  this  website is  accurate,  no  responsibility  can  be accepted for any errors, mistakes or omissions or for any action taken in reliance thereon. You may only reproduce, circulate and use this website (or any part of it) with the consent of Capital International Management Company Sàrl (“CIMC”), 37A avenue J.F. Kennedy, L-1855 Luxembourg.

The information contained in this website is for information purposes only. It is not intended for and should not be distributed to, or relied upon by, members of the public.

The information contained in this website, may contain statements that are not purely historical in nature but are “forward-looking statements”. These include, amongst other things, projections, forecasts  or  estimates  of  income.  These  forward-looking  statements  are  based  upon  certain assumptions, some of which are described in other relevant documents or materials. If you do not understand the contents of this website, you should consult an authorised financial adviser.

Capital IdeasTM

Investment insights from Capital Group

Categories
Fixed Income
EM rate cuts on the horizon as inflation trends down
Peter Becker
Investment Director
June 28, 2023

After a significant decline in emerging market (EM) headline inflation in the first half of the year, we can expect a more visible slowing of core inflation in the second half. 


EM countries have historically struggled with inflation and last year was no exception with higher commodity prices resulting from the Russia/Ukraine conflict (EM countries tend to be more sensitive to commodity prices given the generally higher weight of food and energy in inflation baskets), supply chain issues and weak EM currencies. With the reversal in last year’s surge in food and energy prices, the easing in supply chain bottlenecks and a weaker US dollar, inflation has now slowed in most EM economies. Moreover, after surprising to the upside for much of the past couple of years, inflation surprises have generally now turned negative. This disinflation trend looks set to continue in the second half of the year.


EM central banks have broadly come to the end of their tightening cycles, but they need a few factors in place before they can start cutting rates. 


Many EM countries have aggressively hiked policy rates

D7_EM-rate-cuts-on-horizon-as-inflation-trends-down_916px

Chart shows the change in policy rates from 31 December 2020 to 20 June 2023.
Source: Bloomberg 

In this piece, we outline how a slow and steady rate cutting environment combined with reasonable EM growth should be positive for EM local currency debt


Peter Becker is an investment director at Capital Group. He has 27 years of industry experience and has been with Capital Group for five years. Prior to joining Capital, Peter was a managing director in the fixed income product management team at Wellington Management. Before that, he was a portfolio manager at Aberdeen Asset Management. He holds a master's degree from The Ingolstadt School of Management. He also holds the Chartered Financial Analyst® designation. Peter is based in London.

Learn more about
Fixed Income
Emerging Markets
Central Banks
Currencies
Download PDF

Our latest insights

RELATED INSIGHTS

Hear from our investment team.

Sign up now to get industry-leading insights and timely articles delivered to your inbox.

By providing your details you are agreeing to receive emails from Capital Group. All emails include an unsubscribe link and you may opt out at any time. For more information, please read the Capital Group Privacy Policy

Past results are not predictive of results in future periods. It is not possible to invest directly in an index, which is unmanaged. The value of investments and income from them can go down as well as up and you may lose some or all of your initial investment. This information is not intended to provide investment, tax or other advice, or to be a solicitation to buy or sell any securities.

Statements attributed to an individual represent the opinions of that individual as of the date published and do not necessarily reflect the opinions of Capital Group or its affiliates. All information is as at the date indicated unless otherwise stated. Some information may have been obtained from third parties, and as such the reliability of that information is not guaranteed.

Capital Group manages equity assets through three investment groups. These groups make investment and proxy voting decisions independently. Fixed income investment professionals provide fixed income research and investment management across the Capital organization; however, for securities with equity characteristics, they act solely on behalf of one of the three equity investment groups.