Central banks in emerging markets are abandoning easy policy en masse, shifting to tighter measures to rein in core inflation and offset high energy costs, Citi notes in a new report. The overriding objective for many regulators is to prevent second‑round price effects at almost any cost.

The move is being supported by the relatively strong performance of local currencies. Citi’s strategists have even nudged down their dollar forecast, arguing that the US economy is beginning to stall under the weight of elevated nominal rates. Still, a cleavage is emerging within the emerging‑market bloc that, the bank warns, could produce a sharp divergence in local‑currency bond yields next year.

Central Europe is one pressure point. Poland is wrestling with a renewed inflation wave, while the Czech Republic is struggling to contain accelerating wage growth. Against that backdrop, investors are hunting yield elsewhere. Egyptian assets have seen a surge as nominal rates near cyclical highs have attracted large inflows into short‑dated paper. South African government bonds are also outperforming on a wave of renewed risk appetite following local elections.

Latin America is charting its own course. Colombia’s central bank held its policy rate at 12.25% and announced a $2 billion currency operation in coordination with the finance ministry. Chile’s central bank, by contrast, stuck to hawkish language in meeting minutes, prompting investors to keep long dollar positions against the peso.

In Asia, Citi is tactically buying five‑year Indonesian government bonds with currency hedges in place. The bank also flags worrying signs of a corporate funding squeeze in South Korea. Besides, it is assessing the fallout from the People’s Bank of China’s recent move to raise reserve requirements on foreign-currency deposits.