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  • Emerging Markets Debt Daily

    China Drive to Cut Private Borrowing Costs

    Natalia Gurushina, Economist, Emerging Markets Fixed Income
    June 26, 2019

    China is mulling new initiatives to lower the private sector’s borrowing costs. In Brazil, delaying the pension bill vote until next week is not fatal, but the timeline is important for the central bank’s ability to cut rates.

    With just a few days before the release of China’s activity surveys for June, authorities remain focused on boosting lending to small companies
    , which were a major casualty of the anti-shadow financing drive. We are a bit skeptical about “asking” local banks to boost small companies’ funding through bond sales, but other initiatives in this space make more sense. They include creating an online system for banks to verify companies’ information (several banks have already signed up) and the State Council’s proposal to deepen interest rates liberalization. Both measures have the potential to lower borrowing costs in the private sector, which remain well above interest rates paid by state-owned enterprises.  

    The pension reform vote in Brazil’s special commission may not happen on Thursday after all. The biggest centrist party is pushing to postpone the vote—most likely until July 1 or 2—in order to incorporate last-minute changes in the text. There is also no certainty at this point about the inclusion of states and municipalities, albeit groups of governors are actively working in that direction. The delay is definitely not a “fatal wound” as regards the overall approval process. However, the timing is closely watched by the central bank, which made it clear that there will be no rate cuts until the bill is passed by the lower house.  

    Global developments had a cooling impact on the Czech National Bank’s hawks. The board overwhelmingly decided to keep its benchmark rate on hold today (at 2%), despite an unexpected jump in headline inflation to 2.9% year-on-year. The central bank appears to be in a wait-and-see mode, with the governor indicating that the next move may well be a rate cut. This would be consistent with the current market expectation of 34bps of easing in the next 12 months.


    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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