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  • Emerging Markets Debt Daily

    Accolades for Turkey’s Central Bank

    Natalia Gurushina ,Economist, Emerging Markets Fixed Income
    March 05, 2019

    Turkey’s central bank maintains credibility by staying on hold and keeping its hawkish bias. Argentina’s inflation takes the wrong turn.

    The Turkish central bank (CBRT) earned accolades this morning for staying on hold
    at 24% and maintaining its hawkish bias despite lower inflation and weakening domestic activity. The CBRT stated that it would like to see a “significant improvement” in the inflation dynamics in order to start easing. The government’s fiscal and quasi-fiscal expansion in the run-up to the local elections is another big concern. The market, however, seems confident that monetary authorities would have ample room to cut rates after the elections, pricing in 799bps of easing in the next twelve months.

    Argentina’s inflation dynamics are getting less and less reassuring. According to a local think tank, Elypsis, monthly prices rose by 4% in February—a notable acceleration from January. If the estimate is confirmed, this would mean that yearly headline inflation exceeded 50% last month (see chart below, twice as high as a year ago). Policy-wise, this most likely will necessitate higher interest rates, further depressing domestic activity (and President Mauricio Macri’s chances of getting re-elected).

    Russia’s inflation moved higher in February, as the economy is digesting a higher value added tax (VAT) rate. However, the yearly increase to 5.2% was fully expected, and the central bank believes that the new tax rate had a limited impact on households’ inflation expectations. A top central bank official noted this morning that higher oil prices and a stable currency helped to keep expectations in check, creating room for policy easing later this year.

    Chart at a Glance

    Argentina National Headline Inflation

    Source: VanEck; Bloomberg LP


    PMI – Purchasing Managers’ Index: economic indicators derived from monthly surveys of private sector companies; ISM – Institute for Supply Management PMI: ISM releases an index based on more than 400 purchasing and supply managers surveys; both in the manufacturing and non-manufacturing industries; CPI – Consumer Price Index: an index of the variation in prices paid by typical consumers for retail goods and other items; PPI – Producer Price Index: a family of indexes that measures the average change in selling prices received by domestic producers of goods and services over time; PCE inflation – Personal Consumption Expenditures Price Index: one measure of U.S. inflation, tracking the change in prices of goods and services purchased by consumers throughout the economy; MSCI – Morgan Stanley Capital International: an American provider of equity, fixed income, hedge fund stock market indexes, and equity portfolio analysis tools; VIX – CBOE Volatility Index: an index created by the Chicago Board Options Exchange (CBOE), which shows the market's expectation of 30-day volatility. It is constructed using the implied volatilities on S&P 500 index options.; GBI-EM – JP Morgan’s Government Bond Index – Emerging Markets: comprehensive emerging market debt benchmarks that track local currency bonds issued by Emerging market governments.; EMBI – JP Morgan’s Emerging Market Bond Index: JP Morgan's index of dollar-denominated sovereign bonds issued by a selection of emerging market countries; EMBIG - JP Morgan’s Emerging Market Bond Index Global: tracks total returns for traded external debt instruments in emerging markets.

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