As has been the case in developed markets, policymakers in emerging markets have been quick to deliver monetary stimulus in the face of an unprecedented global health pandemic. While necessary to avert a deeper drawdown in economic activity, the indiscriminate expansion of the money supply could spur an acceleration in inflation once economic momentum returns.

Growth in real M2 has accelerated across the board since the pandemic hit and has surged particularly sharply in Turkey, Brazil, Poland and Turkey.

Source: Bloomberg, Macrobond and Variant Perception

While the lack of sufficient economic data means that we are still in the uncertain stage of understanding how recoveries will play out, it is likely that some economies will bounce back faster than others. Moreover, it is feasible that in some cases monetary easing has overdelivered relative to what is needed to support economic activity.

Source: Bloomberg, Macrobond and Variant Perception

In all cases it is possible that the economy could rebound faster than many expect given that national lockdowns and social restrictions have been less aggressive than in most DMs, income support less generous (implying lower legacy fiscal costs) and labour-market restructuring potentially less disruptive (a semi-permanent work-from-home shift is less likely when the workforce is predominantly low-skilled and the informal economy is larger). As such, inflationary pressures could soon come up on the radar for economies where monetary stimulus has overdelivered.