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  • Emerging Markets Debt Daily

    Mexico Central Bank Buys Time

    Natalia Gurushina ,Economist, Emerging Markets Fixed Income
    February 08, 2019

    Mexico’s central bank scaled down its hawkishness, responding to lower inflation and soft domestic demand. South Africa’s president promised to restructure energy giant Eskom in his state of the nation address, but made no references to privatization.

    Mexico’s central bank sounded less hawkish yesterday, which is not particularly surprising given the lower trailing inflation and softening domestic activity (today’s disappointing capital investments print for November is a case in point). The board acknowledged, however, that inflation risks are still tilted to the upside. Concerns about the government’s fiscal stance will also keep the central bank on its toes. All this should reinforce the market’s belief that the first rate cut will only take place in the second half of the year.

    In his state of the nation address, South Africa’s President Cyril Ramaphosa reiterated the government’s commitment to pro-growth strategies (which envisages the creation of the infrastructure fund but no privatization for now). He also addressed Eskom’s restructuring, confirming that the state-owned energy giant will be split into three separate entities and receive additional support from the budget (in conjunction with major cost-cutting, which the market considered to be credit-positive). The key challenge for the government is to make sure that any such support would not have negative implications for its fiscal position and, hence, for the rating.

    Contrary to expectations, Indonesia’s current account1 deficit continued to widen in Q4, reaching USD9.148B and erasing pretty much all of the post-2014 improvements (see chart below). The deterioration was driven by stronger domestic investments, and the latest changes in the government’s spending plans suggest that we should see the current account gap’s narrowing in 2019. Still, the release caught the central bank’s attention, with Bank Indonesia Governor Perry Warjiyo noting that monetary policy will remain hawkish for now.


    Chart at a Glance

    Indonesia Current Account

    Source: Bloomberg LP

    1Current account is a record of a country’s transactions with the rest of the world, based on its net trade in goods and services, net earnings on cross-border investments, and net transfer payments.


    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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