Emerging-market central banks want to cut. Capital flight will not let them

The carry trade unwinds

October's market turbulence reached the carry trade. Foreign investors unwound carry trades in Türkiye and Egypt during the month, according to Emirates NBD, after leveraged investors cut exposures in response to a rout in AI stocks, widening high-yield credit spreads and a sharp selloff in Brazilian markets. The two countries absorbed the same shock differently: Egypt let its currency depreciate, while Türkiye saw greater fluctuations in its international reserves. m:…6435

The asymmetry matters for what happens next. Underlying inflation trends in Türkiye favour faster monetary easing in the coming year, Emirates NBD says, but renewed capital outflows constrain the central bank's ability to cut rates. An oil-price spike added to the pressure, threatening to raise energy import bills in both countries, with higher prices reflecting increased geopolitical risk. m:…6435

Ankara loosens at the margin

Türkiye's central bank is loosening at the margin rather than cutting the policy rate. In a macroprudential update, the Central Bank of the Republic of Türkiye raised the growth limit for general-purpose consumer loans from 3% to 3.5% for an eight-week period, and did the same for vehicle loans. The limit for Turkish lira loans to small and medium enterprises rose from 5% to 5.5%, and for non-SME enterprises from 2% to 2.5%. The bank also updated its reserve requirement framework, offering remuneration in lira for required reserves on non-deposit liabilities with maturities longer than one year. m:…7359

The channel from a US AI-stock rout to a Turkish rate decision runs through leveraged investors. When they cut exposures, the carry trades that fund Türkiye's external position unwind, reserves swing, and the central bank's room to ease narrows even as domestic inflation trends point the other way. Loosening loan growth limits is the compromise: credit eases a little without the policy rate moving at all. m:…6435 m:…7359

Elsewhere, still hiking

Ukraine shows the other side of the same shock. Annual inflation accelerated to 11.0% in October 2026, with monthly prices up 1.8%, according to the National Bank of Ukraine. Fuel inflation reached 53.9% year on year, core inflation rose to 9.7%, services prices grew 14.6% and administered prices 14.2%. The central bank expects inflationary pressures to intensify through early 2027 before gradually slowing as fuel price shocks dissipate and wage pressures ease, and says it plans to use monetary policy measures to reduce inflation. m:…7090

Mauritius, by contrast, is still tightening. Its monetary policy committee voted unanimously to raise the policy rate by 25 basis points to 5.00%, judging the risk of inflation becoming entrenched above its 2% to 5% target range as more significant than the risks to growth. Year-on-year inflation accelerated to 6.4% in October, fuel prices rose 17.5%, and Brent crude has traded above 100 dollars a barrel since September, while the FAO food price index reached a near four-year high. The bank projects headline inflation will exceed the top of its target range in 2027, even as real GDP growth is forecast at 3.0% in 2026 and 3.2% in 2027. m:…5112

The resilience check

The stress tests, at least, are coming back clean. The Reserve Bank of New Zealand published findings from a reverse stress test of its life and health insurance industry, finding the sector would need a combination of severe shocks to breach solvency requirements, and saying the exercise improved risk management across the industry. The picture across these five central banks is consistent: the system can absorb shocks, but the room to ease is narrow, and in several countries it is still shrinking. m:…9422