Emerging Markets Weekly

As central banks in developed nations around the world are running out of means to stimulate their economies, emerging markets still have plenty lot of room to ease monetary policy further to stimulate their countries' economies in 2009.

Around the globe, developed nations, with the exception of continental Europe, have cut key lending rates to close to nothing to ease lending rates in the midst of a severe credit crunch that has unfolded since the fourth quarter of 2008. Central bankers in the advanced world have now moved toward quantitative easing - a form of money printing in simplest terms.

In contrast, emerging markets have been slower to ease monetary policy for several reasons. For one thing, inflation fell more slowly in emerging markets and given that the economic slowdown hit the developed world with a lag. For another thing, some countries, most notably Russia, were forced to raise rates to shore up their currencies due to capital flight and inflation pressures.

Now that the global economic recession has firmly taken hold and inflation concerns have receded, there appears to be ample room for BRIC countries to ease monetary policy over the balance of the year and in 2010. These countries continue to grow on average in 2009 whereas the advanced economies are contracting deeply. Room for policy easing in the emerging markets will support stock market recoveries that have taken hold in earnest.