MichaelSchmichael

Brazil: One of the Best Opportunities in Emerging Markets

I am not so convinced that easing is likely. The problem I see for many EMs, especially those in LatAm is as follows. There is now and presumably will be continued significant downward pressure on their currencies. At a certain point they are going to have to stop using reserves to support the value of their currencies (or risk running out of them -- I haven't heard the latest figures for Argentina's reserve burn rate, but I imagine the controlled slide is costing them dearly), at which point they have to decide whether to let the currency fall or raise interest rates to support the currency. If they let the currency fall, inflationary pressures build (and, more immediately, corporate USD/Euro denominated debt becomes more expensive) and they are back to raising rates. I see easing as a possible outcome only if the fabled soft landing happens.