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  • Emerging Markets Debt Daily

    Kudos to Turkey’s Vigilant Central Bank

    Natalia Gurushina ,Economist, Emerging Markets Fixed Income
    January 16, 2019

    The Turkish lira rallied on the central bank’s decision to keep its key rate on hold and maintain a hawkish bias. Argentina’s disinflation is on firmer footing. China addresses liquidity concerns with the largest ever repo provision.

    The Turkish lira reacted very positively to the central bank’s decision to keep both its policy rate (24%) and hawkish bias unchanged this morning. The central bank’s intention to hike again if necessary was particularly reassuring, given that higher tobacco taxes and additional stimulus in the run up to the local elections may push Q1 inflation higher (offsetting the extension of tax cuts and lower energy prices).

    Argentina’s disinflation appears to be on firmer footing these days. Headline inflation moderated a bit more than expected in December – to 2.6% month-on-month and 47.6% year-on-year – and deceleration was widespread. The diffusion index1 fell to a mere 8.3% in December, compared to around 70% just a few months ago. Still, we expect the central bank to stay alert. Core inflation continued to rise on a year-on-year basis in December (47.7%), and planned increases in regulated tariffs and the wage negotiations may increase inflation pressures going forward.

    China’s massive liquidity injection caught the market’s attention this morning. The central bank’s CNY570B repo provision was the largest on record (see chart below). The main purpose was to satisfy holiday and tax liquidity demand, but many commentators discussed the People’s Bank of China’s (PBoC’s) move in the context of slowing domestic activity. Regarding the latter, the central bank’s stance on the benchmark rate cuts may be changing. Earlier this week, the PBoC signaled that such cuts are no longer ruled out and that the exchange rate is no longer a constraint.


    Chart at a Glance

    China Lending: New Loans Up, Shadow Financing Down

    Source: 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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