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  • Emerging Markets Debt Daily

    India’s Major Corporate Tax Relief

    Natalia Gurushina, Economist, Emerging Markets Fixed Income
    September 20, 2019

    India announced major corporate tax cuts this morning in order to boost the cyclical growth outlook and address longer-term competitiveness issues. The relief aims to reduce the effective tax rate from 30% to 25% (from 25% to 15% for new companies). The cuts are great for sentiment (and, hopefully, for investments). They, however, will have a sizable fiscal impact - an estimated 0.7% of gross domestic product (GDP). We would not be surprised if this leads to a slower pace of the central bank’s policy rate cuts in the coming months.

    China’s central bank (PBoC) continues to proceed very carefully on the monetary policy front. While the PBoC lowered the 1-year loan prime rate (LPR) by 5 basis points (bps) to 4.2% this morning (in line with consensus), it left the 5-year loan rate unchanged at 4.85% - against the market expectation of the matching 5bps cut. What happens with the LPR is important because banks started to benchmark new loans against it from August 20th. The LPR itself is benchmarked off the medium-term lending facility rate, which was also left unchanged earlier this month - much to the market’s surprise. Today’s decision is in line with our earlier assessment that the central bank is not in a hurry to flood the system with credit despite growth headwinds. Potential asset bubbles are also on the PBoC’s radar - this helps to explain why there was no cut in the longer-tenor LPR which is used to price new mortgage loans.

    Turkey’s consumer confidence is struggling to lift-off despite the recent measures to stimulate the economy. The August rebound did not last, and the confidence index dropped again in September. One possible explanation is that inflation expectations remain poorly anchored, the recent big drop in headline prices notwithstanding. If this is the case, industry will continue to be the main beneficiary of policy easing, while the contribution of private consumption’s to real GDP growth will continue to lag.


    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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