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  • Emerging Markets Debt Daily

    Argentina’s Inflation Nightmare

    Natalia Gurushina ,Economist, Emerging Markets Fixed Income
    March 14, 2019

    Argentina’s central bank is fighting to preserve credibility and shore up the peso following another disastrous inflation print. The ninefold increase in Turkey’s central government deficit raises serious concerns about the 2019 fiscal target.

    Argentina’s February inflation delivered yet another upside surprise, accelerating to 51.3% year-on-year (52.5% core). The central bank responded immediately by extending the monetary base zero target growth rate and committing to over-comply with the target until the end of the year. The move shows that the central bank is fighting to preserve credibility to shore up the peso. However, this is bad news for growth, as well as for President Mauricio Macri who will be facing elections in a few months and who is running out of time to show to his electoral base that “things are getting better”.

    The ninefold increase in the central government’s February deficit raises serious concerns about Turkey’s ability to meet this year’s deficit target of 1.8% of gross domestic product (GDP). The fact that the fiscal numbers for the first two months include the earlier transfer of the central bank’s dividend (which usually happens in April), makes the situation even more worrisome. Today’s release sends a very negative signal about the sovereign credit metrics and local bond issuance.

    Indonesia’s unexpected trade surplus (USD330M in February vs. the consensus forecast of USD781.5M deficit) is no reason for celebration. The surplus was due to a big drop in imports. However, exports also continued to slow (down 11.3% year-on-year), and the weakness appears to be broad-based, threatening the central bank’s goal of reducing the current account deficit to 2.5% of GDP in 2019. The continuation of this trend implies that the central bank might have limited room to relax its policy stance in the coming months.


    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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