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  • Emerging Markets Debt Daily

    Turkey – Long Road to Policy Credibility

    Natalia Gurushina, Chief Economist, Emerging Markets Fixed Income Strategy
    September 21, 2020

    Turkey got slammed by Moody’s for depleting external buffers. China kept the benchmark rates on hold as the recovery is gaining pace.

    Turkey got another “red card” from Moody’s this morning, with the rating agency warning that the country’s buffers against a balance-of-payments crisis are “almost depleted”. Against this backdrop, the forthcoming rate-setting meeting of the central bank (CBRT) will be closely watched. The consensus does not expect any changes in the benchmark policy rate, but the CBRT does have an option to raise the late liquidity window rate, so that the average cost of funding can grind higher (more “backdoor” tightening). The question is how much would be enough to reassure the market and start restoring the central bank’s credibility.

    China’s domestic activity is gaining pace and the recovery is now looking more balanced, so it is not surprising that the central bank left the benchmark Loan Prime Rates (LPR) on hold. The next installment of China’s activity gauges will arrive next Tuesday, and one particular angle that will be of interest to us is how China’s small and privately-owned companies are doing. A lack of progress in this area had been rather obvious in this particular recovery, and this will determine the pace and direction of China’s “drip” stimulus

    Mounting concerns about the virus’s second wave were partly blamed for today’s de-risking episode in global markets. South Korea’s seemingly firm 20-day exports – often used as a proxy for global economic activity – looked disappointing (average daily exports down by 9.8% year-on-year) when adjusted for extra working days and taking into account one-offs (such as frontloading before seasonal holidays). So, even though there are signs that global recovery is progressing, the consensus is not in a hurry to lift its 2020 global growth forecast (at around -3.9% since June).

    Chart at a Glance: Will Turkey Raise Late Liquidity Window Rate This Week?

    Chart at a Glance: Will Turkey Raise Late Liquidity Window Rate This Week?

    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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