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  • Emerging Markets Debt Daily

    Russia Central Bank – No Cuts for You!

    Natalia Gurushina, Chief Economist, Emerging Markets Fixed Income Strategy
    February 12, 2021

    The Russian central bank sends a hawkish signal. Turkey’s current account might be on the mend after the recent rate hikes.

    A house, a grey dove, a Nevalyashka doll, an owl, a snake, a flower, a fish, the victory sign, a horseshoe… What do all these things have in common? These are the brooches worn by Russian central bank Governor Elvira Nabiullina during press-conferences―and they were enthusiastically used by Russia-watchers to interpret changes in the central bank’s policy stance (seriously…). Today’s austere-looking pin sent a clear signal that rate cuts are over (ok, ok…the Governor said it herself, but a coded message from the pin is more fun). A combination of higher inflation (year-end forecasts up, medium-term inflation risks no longer “lower”) and a non-zero risk of more sanctions provide a good explanation for the central bank’s more hawkish guidance.

    Turkey’s current account is still deeply in the red, but there are signs that things might be slowly improving after the recent rate hikes (see chart below). December’s deficit was smaller than expected (USD3.21B), albeit it will take some time (around 6 months or so) until we see the full impact of higher rates on credit growth and demand for imported goods (including gold). These positive expectations are reflected in a smaller current account deficit consensus forecast for 2021―3% of GDP compared to this year’s 5.1% of GDP.

    Global inflation trends is a popular topic these days (it’s nearly impossible to find a global macro comment without a 5y5y inflation swap chart staring right at you), and the inflation scene in emerging markets (EM) is far from boring. We still see downside inflation surprises in Asia (China earlier this week, India today), but price pressures in Central European economies and LATAM are more persistent. Czech headline inflation was way above consensus in January, and estimates suggest that Hungary’s core inflation broke out of the target range. This is one of the reasons why the market is pricing in more rate hikes over the next 12 months (71bps in the Czech Republic, 33bps in Hungary and 15bps in Poland).

    Charts at a Glance: Turkey Current Account – Finally Hopeful Signs?

    Charts at a Glance: Turkey Current Account – Finally Hopeful Signs?

    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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  • Authored by

    Natalia Gurushina
    Chief Economist, Emerging Markets Fixed Income Strategy

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