26 May 2022
VanEck Blogs | Emerging Markets Debt Daily
EM - Here Come the Doves?

We are hearing some dovish noises in EMEA - even though inflation says it is premature. Most central banks elsewhere have gotten their policy priorities straight, though.

EMEA Hiking Cycles, Inflation

Monetary policy hawks dominate newswires these days, which is why dovish statements coming from emerging markets (EM) other than China attract a lot of attention. Comments from the incoming governor of the Czech National Bank, Aleš Michl, about “imported” price pressures driving inflation (rendering rate hikes ineffective) were not particularly surprising, but a comment from known hawk Vojtech Benda that there may be no rate hike in June was a departure from the familiar script. If this scenario materializes, Czech local bonds may no longer look interesting against the backdrop of surging inflation (14.2% year-on-year in April – well above inflation in Brazil!; see chart below).

Hungary Unorthodox Policy Moves

The Hungarian forint was another market casualty in EMEA this week – some blamed it on dovish-like comments from the central bank’s Deputy Governor Barnabas Virag, who said that a longer tightening cycle might require smaller incremental hikes. But most likely, the forint reacted to Prime Minister Viktor Orban’s proposal to introduce a windfall gains tax on large companies – which came right after declaring state of emergency that allows the government to rule by decree. A colleague of mine asked sarcastically “What could go wrong?” Obviously, a lot.

EM Asia, LATAM - Hawks Are In Charge

Dovish policy tilts are still a novelty – both in EM and developed markets (DM). South Korea’s central bank not only delivered a much-needed 25bps hike today, but also lifted its inflation forecasts both for 2022 and 2023, signaling that there are more rate hikes in the pipeline. Mexico’s central bank minutes also did not strike us as particularly dovish – despite saying that there is no excess demand and mentioning slower growth. The minutes also said that forceful actions are needed to anchor inflation expectations – albeit not necessarily in +75bps increments. There is plenty of time until the central bank’s next rate-setting meeting on June 23 – with some important reading (the inflation reports on June 1) and data-watching (May’s inflation on June 9) coming before that. Stay tuned!

Chart at a Glance: Czech Inflation Argues Against A Pause in Rate Hikes

Chart at a Glance: Czech Inflation Argues Against A Pause in Rate Hikes

Source: Bloomberg LP


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Natalia Gurushina
Chief Economist, Emerging Markets Fixed Income