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  • Emerging Markets Debt Daily

    EM Central Banks Attack Macro Imbalances

    Natalia Gurushina ,Economist, Emerging Markets Fixed Income
    January 17, 2019

    Emerging markets central banks are remaining vigilant, despite a “blinking” U.S. Federal Reserve.

    South African Reserve Bank (SARB) is keeping its policy rate unchanged at 6.75%, as expected, and the rand sold off by 95bps (as of 9:30 a.m. ET, according to Bloomberg). The central bank cut its inflation (and growth) forecasts more than expected, now seeing inflation averaging 5% in 2019 (compared to 4.3% in 2018), and peaking at 5.6% in Q1 2020. This points to a SARB whose recent vigilance (it hiked rates in November) has paid off, and can now likely be on hold. The selloff in the rand is partly the result of the lower inflation forecasts and partly the result of a broader emerging markets currency retrenchment this morning.

    Indonesia’s central bank leaves its policy rate unchanged, while keeping the door open for more hikes. After hiking by 175bps since May, Bank Indonesia kept its 7-day repo rate at 6%, as expected. Central Bank Governor Perry Warjiyo said that the rate was near its peak, but emphasized that the institution remained “hawkish” and that they would be “preemptive and forward-looking”. It represents another central bank super-focused on macro imbalances, particularly the current account and inflation risks.

    Brazil’s November growth came in substantially better than consensus expectations. The Brazilian monthly economic activity index, the IBC-Br1, expanded 0.29% month-on-month. Despite this improvement, the index is still substantially below its levels of five years ago, which may point to substantial upside if the fluctuating recovery solidifies. The market’s focus remains, though, on pension reform, with the new government set to make its proposal public in early February.



    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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