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  • Emerging Markets Debt Daily

    Turkey Central Bank Cuts More Than Rates

    Natalia Gurushina, Economist, Emerging Markets Fixed Income
    August 09, 2019

    I’ve got “Georgia Turkey on My Mind” again this morning. This is not because the monthly current accountslipped back into deficit in June (USD548M)—the 12-month running balance actually turned positive for the first time since 2002, signaling that the external adjustment is still taking place against the backdrop of weak domestic demand. The reason for concern is the ongoing hollowing out of the central bank. Several high-ranking officials were fired yesterday, including the well-respected chief economist. Well, I guess the inflation forecasts will now be “sorted out.” The market may be slow to react to this news—reports that the central bank got USD1B from China under the swap agreement may be more important in the short-term.

    An upside surprise in China’s headline inflation is unlikely to affect the central bank’s accommodative policy bias. Headline prices accelerated more than expected in July (to 2.8% year-on-year)—but this was mainly due to higher food prices (pork), whereas core pressures remained subdued. Further, yearly producer prices moved further into contraction territory (-0.3%). Even though commodity prices and a high base effect were the main reasons for the decline, the release signals that domestic demand needs more policy support, which we expect to be delivered in the “drip” format.

    Mexico’s industrial production recovered from the multi-year low recorded in May (in seasonally-adjusted terms), but the yearly growth remained very negative (-2.12% in June). Soft domestic demand and the nascent downward trend in headline inflation provide a good excuse for the central bank to start a rate-cutting cycle already in August. 

    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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