Inflation woes: Emerging markets lead rate hikes; ECB may be next
The Iran war has disrupted shipping through the Strait of Hormuz, lifting energy and food costs and driving inflation higher. In response, a number of emerging and frontier market central banks — including Indonesia, South Africa, Rwanda and Sri Lanka — have already hiked policy rates, with others like the Philippines considering action. Higher energy-driven inflation has also increased the odds the ECB will raise rates (likely 25 bps at the next meeting) and continue tightening into year-end. The story implies tighter global monetary policy and volatility for emerging-market assets, putting pressure on EM equity ETFs and sovereign debt while supporting further rate-sensitive tightening across developed markets.