Russia CPI (July)

The decline in Russian inflation to 4.6% y/y last month – coming alongside the stability of the ruble this week – adds weight to our view that the central bank will cut its policy rate by a further 25bp next month. And we continue to expect more monetary easing over the next 6-9 months than the financial markets are currently pricing in.
William Jackson Chief Emerging Markets Economist
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Emerging Europe Economics Weekly

Omicron & tightening cycles, Turkey into the unknown

While a lot is still unknown about the Omicron variant, we don’t think it will prevent central banks from delivering further large interest rate hikes - Poland will be a case in point next week, where we expect a 75bp rate hike. The key exception is Turkey, where the departure of Finance Minister Elvan this week adds to signs that policymakers are not prepared to respond to the recent falls in the lira with an orthodox approach. The currency will remain under pressure and this week’s interventions in the FX market suggest policymakers’ tolerance of a weak lira is being tested. These interventions cannot be sustained and soft capital control may be the next port of call.

3 December 2021

Emerging Europe Economics Update

Turkey & the macro fallout from past “sudden stops”

The history books show that currency crises in other parts of the emerging world in recent decades have resulted in peak-to-trough falls in GDP of around 8% on average and pushed headline inflation up by 25%-pts from its latest trough. The latest crisis in Turkey is likely to result in a downturn that sits towards the milder end of the spectrum and, so long as the lira stabilises, the peak in inflation is likely to be in the region of 25-30% y/y in the next few months.

3 December 2021

Emerging Europe Data Response

Turkey Consumer Prices (Nov.)

The rise in Turkey’s headline inflation rate to 21.3% y/y in November will almost certainly be followed by further chunky increases over the coming months that take it to 25-30% as the effects of the recent currency crises continue to filter through. With no sign that President Erdogan will permit an orthodox policy response in the form of large interest rate hikes, the lira will struggle to recoup its losses and inflation will remain at these very high levels throughout much of the next six-to-nine months.

3 December 2021

More from William Jackson

Latin America Data Response

Brazil IPCA (May)

The further jump in Brazil’s headline inflation rate last month, to 8.1% y/y, makes a 75bp hike in the Selic rate (to 4.25%) next week certain and Copom will probably signal that another 75bp hike is on the cards at the subsequent meeting in August.

9 June 2021

Latin America Data Response

Mexico Consumer Prices (May)

The rise in Mexican core inflation to its highest rate in over three years in May, at 4.4%, appears mainly to be related to temporary factors. Policymakers at the central bank will probably continue to adopt cautious language but so long as core inflation falls back in the next few months, as we expect, Banxico is likely to refrain from raising interest rates.

9 June 2021

Latin America Economics Update

Revising up our Brazil growth forecast

The latest data suggest that Brazil’s economy has been much more resilient to the latest virus waves than we had anticipated and, as a result, we’re revising up our GDP growth forecast for this year to 4.5% (previously 3.0%). The brighter economic outlook means that we now think that the Selic rate will be raised from 3.50% now to 5.50% by the end of the year (previously 4.75%). We remain of the view that Copom will bring the tightening cycle to an end sooner than most currently think.

3 June 2021
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