The Growth Equation: Loose Fiscal and Tight Monetary Policies in Emerging Markets

Across various emerging markets (EMs), political leaders with populist inclinations are advocating for looser fiscal policies while simultaneously urging central banks to adopt more supportive monetary policies. However, central banks are largely resisting these pressures to maintain tighter monetary conditions to counter inflation. This scenario mirrors historical precedents in the US during the early 1980s and Germany post-reunification in the early 1990s, suggesting a potentially favorable environment for local risk assets and currencies in EMs.