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  • Emerging Markets Debt Daily

    Turkey’s Central Bank – Last Slice?

    Natalia Gurushina, Economist, Emerging Markets Fixed Income
    February 19, 2020

    Turkey predictably delivered another policy rate cut. South Africa’s inflation remains well-behaved.

    The Turkish central bank (CBRT) is becoming rather predictable. It delivered yet another policy rate cut this morning (50bps), as authorities continue to believe that inflation would look better at the end of the year. There is a small caveat, though. When describing the future inflation path, the word “projected” was replaced with “aimed”, which is filled with less certainty. There are two (related) factors that would argue in favor of a pause (I would add—in countries with a more orthodox policy agenda). First, the real policy rate is already negative. Second, the Turkish lira is struggling, and the pressure might increase even more in the absence of a real rates cushion.

    South Africa’s headline inflation jumped to 4.5% year-on-year in January, but the increase was: (1) smaller than expected, and (2) mostly due to a low base effect. So, even after today’s increase headline inflation remains well within the central bank’s target range. Core inflation also continues to behave well, easing (against consensus) to 3.7% year-on-year. Against this backdrop, it is not surprising that the market sees room for two more policy rate cuts in South Africa (a total of 50bps) in the next twelve months.

     Headlines about new U.S. sanctions against a Russian company called Rosneft—this time due to involvement in Venezuela—spooked the market yesterday. But then we saw a clarification that the sanctioned entity was not the state-controlled energy giant, but its trading unit registered in Geneva. Companies were given until May 20, 2020 to withdraw from their activities with Rosneft Trading—which is rather generous. Yawn.


    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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