EM Rates Review
- By Caroline Grady
- 5 min read
Summary
– CEE rate hikes accelerated significantly last week while minutes from Brazil confirmed a hike of more than 150bps was discussed at the last meeting. Russia’s late October hike was also larger than expected.
– Aggressive rate hikes are in contrast to G10, particularly with the BoE surprising the market and remaining on hold.
– Greater need to anchor inflation expectations, cement policy credibility and in some cases counter fiscal risks / expansionary policy in the run up to elections is playing a role. Some broadening out of inflation is evident but we don’t see this as the driving factor behind policy decisions.
Market Implications
– Higher real short-term yields have been positively correlated with FX moves across EM in recent months. This suggests PLN, CZK and RUB should outperform, albeit with Poland contingent on addressing poor NBP communication. But for BRL, TRY and potentially HUF, rising fiscal and political risks mean higher rates will not support the currency.
Summary
– CEE rate hikes accelerated significantly last week while minutes from Brazil confirmed a hike of more than 150bps was discussed at the last meeting. Russia’s late October hike was also larger than expected.
– Aggressive rate hikes are in contrast to G10, particularly with the BoE surprising the market and remaining on hold.
– Greater need to anchor inflation expectations, cement policy credibility and in some cases counter fiscal risks / expansionary policy in the run up to elections is playing a role. Some broadening out of inflation is evident but we don’t see this as the driving factor behind policy decisions.
Market Implications
– Higher real short-term yields have been positively correlated with FX moves across EM in recent months. This suggests PLN, CZK and RUB should outperform, albeit with Poland contingent on addressing poor NBP communication. But for BRL, TRY and potentially HUF, rising fiscal and political risks mean higher rates will not support the currency.
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