Emerging Market Central Banks in May: Increased Polarization
2023-05-26
■More and more central banks are suspending interest rate hikes in major emerging countries, and Mexico joined in May.
■The price of South Africa is rising and the currency is depreciating, and the result of Turkey’s presidential election is worrying
More and more central banks in major emerging economies are suspending their interest rate hike cycles. Since May, Poland, Chile, and Peru have maintained policy interest rates unchanged as expected by the market. In this article, I would like to summarize the situation of Brazil, Mexico, South Africa, and Turkey, which are particularly concerned.
The Brazilian Central Bank (BCB), which terminated the interest rate hike cycle ahead of schedule, decided to maintain the policy rate unchanged at 13.75% for the sixth consecutive time at a policy meeting held on the 3rd. He also stated that concerns about the government's fiscal policy have eased and stated that the possibility of resuming interest rate hikes is "reduced". The Lula government will introduce a new financial framework with the goal of achieving a basic balance by 2024 and a surplus by 2025, and demand that the Brazilian central bank cut interest rates as soon as possible. In April, the consumer price index (IPCA) inflation rate slowed down to 4.18% year-on-year, the lowest level since October 2020. Some markets began to realize the implementation of interest rate cuts in the second half of this year.
In addition, at the policy meeting held on the 18th, the Mexican Central Bank decided to maintain the policy interest rate at 11.25% and stop the interest rate hike cycle from June 2021. Although the CPI inflation rate continues to exceed the central bank's price target range (2-4%), it slowed to 6.25% year-on-year in April, the lowest level since October 2021. Although the central bank remains cautious about price increases, it has joined the ranks of stopping the interest rate hike cycle, maintaining its expectation that inflation will slow to the target range (2-4%) next quarter.
The monetary policy meeting will be held in South Africa and Turkey today (25th). The currencies of Brazil and Mexico mentioned above have appreciated since the beginning of the year, while South Africa and Turkey have been at historic lows against the US dollar due to economic and political instability. In South Africa and Turkey, when considering the impact of currency depreciation on prices, we should pay attention to the policy stance of the central bank.
The market forecasts that South Africa will raise the policy interest rate to 8.00%, while Turkey will remain at 8.50%. In South Africa, as power outages become increasingly nauseating, the rand is depreciating. Considering that currency depreciation has stopped and the year-on-year CPI increase in March remains at a high level of 7.1%, the central bank will continue to struggle. On the other hand, Turkey’s central bank may not take action until the presidential election (run-off vote) on the 28th. If Erdogan fails, the market strongly believes that the central bank's policy path will change. Although the CPI increase in April slowed down, it remained at a high level of 43.68% compared to the previous year.
■The price of South Africa is rising and the currency is depreciating, and the result of Turkey’s presidential election is worrying
More and more central banks in major emerging economies are suspending their interest rate hike cycles. Since May, Poland, Chile, and Peru have maintained policy interest rates unchanged as expected by the market. In this article, I would like to summarize the situation of Brazil, Mexico, South Africa, and Turkey, which are particularly concerned.
The Brazilian Central Bank (BCB), which terminated the interest rate hike cycle ahead of schedule, decided to maintain the policy rate unchanged at 13.75% for the sixth consecutive time at a policy meeting held on the 3rd. He also stated that concerns about the government's fiscal policy have eased and stated that the possibility of resuming interest rate hikes is "reduced". The Lula government will introduce a new financial framework with the goal of achieving a basic balance by 2024 and a surplus by 2025, and demand that the Brazilian central bank cut interest rates as soon as possible. In April, the consumer price index (IPCA) inflation rate slowed down to 4.18% year-on-year, the lowest level since October 2020. Some markets began to realize the implementation of interest rate cuts in the second half of this year.
In addition, at the policy meeting held on the 18th, the Mexican Central Bank decided to maintain the policy interest rate at 11.25% and stop the interest rate hike cycle from June 2021. Although the CPI inflation rate continues to exceed the central bank's price target range (2-4%), it slowed to 6.25% year-on-year in April, the lowest level since October 2021. Although the central bank remains cautious about price increases, it has joined the ranks of stopping the interest rate hike cycle, maintaining its expectation that inflation will slow to the target range (2-4%) next quarter.
The monetary policy meeting will be held in South Africa and Turkey today (25th). The currencies of Brazil and Mexico mentioned above have appreciated since the beginning of the year, while South Africa and Turkey have been at historic lows against the US dollar due to economic and political instability. In South Africa and Turkey, when considering the impact of currency depreciation on prices, we should pay attention to the policy stance of the central bank.
The market forecasts that South Africa will raise the policy interest rate to 8.00%, while Turkey will remain at 8.50%. In South Africa, as power outages become increasingly nauseating, the rand is depreciating. Considering that currency depreciation has stopped and the year-on-year CPI increase in March remains at a high level of 7.1%, the central bank will continue to struggle. On the other hand, Turkey’s central bank may not take action until the presidential election (run-off vote) on the 28th. If Erdogan fails, the market strongly believes that the central bank's policy path will change. Although the CPI increase in April slowed down, it remained at a high level of 43.68% compared to the previous year.