Trump leaves emerging market central banks with no clean choices

April 7 (Reuters) - U.S. President Donald Trump's bruising blast of tariffs last week has thrown emerging market central banks a fresh curve ball with many now forced to make the tough choice between supporting economic activity and keeping fragile currencies stable.

Economies such as India and Indonesia had until now taken a cautious approach to interest rate cuts, keen to avoid the kinds of market meltdowns that have roiled their economies in past decades.

However, some of those market stability concerns are now taking a back seat as policymakers grow more worried about economic fundamentals. Analysts said that means some emerging market central banks could cut rates more aggressively than a more ambivalent U.S. Federal Reserve.

"I think that this kind of reconfiguration of economic priorities is likely to mean local currencies could face more headwinds this year as their banks shore up growth through easing monetary policy," said David Chao, global market strategist for Asia Pacific at Invesco.

This meant that central banks in Asia, for the first time, could be easing ahead of the Fed, Chao added.

Emerging markets have historically been extremely vulnerable to sharp interest rates divergence with the U.S., which has triggered capital flight often with destabilising political and economic consequences.

Worsening already battered investor confidence last week were comments from Fed Chair Jerome Powell that suggested the bank would be in no rush to cut rates further, even as global markets tumbled.

That "wait and see" approach is a stark contrast to market pricing, which show...
[Short citation of 8% of the original article]