Emerging Markets in Asia, gripped in low growth, low inflation, and high current account surpluses are likely to tolerate FX weakness. Some central banks may consider cutting rates given the fresh disinflationary inclination from lower energy prices.
In EMEA EM, FX weakness is seen in Russia and South Africa as the economies trade terms are hampered by lower commodity prices, which adds further pressure on inflation. With rates at 11 percent and the economy seeming to still be in recession, Russia's central bank may find it difficult to ease before mid year. South African Reserve Bank is expected to hike 50bp.
The Latin economies are being hit hard with the decline in commodity prices. Most central banks are tightening their policy as inflation is above target almost throughout the region. The strengthening of FX and inflation pressures will bias them toward staying the course. The Mexican peso's quick slide will worsen Banxico's concerns about its economy's financial stability and will leave it inclined to follow the Fed. In Brazil, the central bank is expected to hike it rates by 150bp although political pressure against this is likely to build.
