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Corporate FX debt risks in Turkey, EU fund hopes

Recent plans announced by the Turkish authorities to restrict access to lira-denominated loans to corporates with large FX holdings add to the growing risks stemming from corporates' large FX debts. Meanwhile, Poland and Hungary are moving closer to unlocking access to some EU funds but a lack of progress on reforms to the rule of law means that these are likely to be delayed for some time. A resolution to the dispute may give a boost to the beleaguered Hungarian forint, but it will not solve all the problems and macro imbalances that have made it one of the worst performing EM currencies this year.
EM Drop-In (Thurs, 7th July): Join our economists for their regular monthly briefing on the hot stories in EMs – and those that aren’t getting the attention they deserve. In this 20-minute session, topics will include the outlook for EM FX markets after the recent sell-offs. Register now.
Jason Tuvey Senior Emerging Markets Economist
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Emerging Europe Data Response

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Loadshedding and the hit to South Africa’s economy

If past experience is anything to go by, deepening electricity supply cuts in South Africa are likely to deal a heavy blow to activity in energy-intensive sectors such as mining and manufacturing. Even if loadshedding is scaled back in the coming weeks, efforts to overhaul the country’s energy infrastructure will take time and persistent power problems will remain a perennial headwind to economic growth. EM Drop-In (Thurs, 7th July): Join our economists for their regular monthly briefing on the hot stories in EMs – and those that aren’t getting the attention they deserve. In this 20-minute session, topics will include the outlook for EM FX markets after the recent sell-offs. Register now.

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CBRT: knock knock, anybody there?

High inflation, falls in the lira and aggressive monetary tightening elsewhere are clearly not enough to persuade Turkey’s central bank to lift interest rates, as it left its policy rate at 14.00% today. Disorderly falls in the lira are a major risk, which would probably be met with capital controls rather than rate hikes.

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Africa Data Response

South Africa Consumer Prices (May)

The rise in inflation in South Africa to an above-target 6.5% y/y in May is likely to shift the debate to a choice between a 50bp and a 75bp hike to interest rates at July’s MPC meeting. But inflation continues to be driven by food and energy price effects and, if the headline rate falls sharply over the rest of this year as we expect, interest rates will probably be raised by less than investors anticipate over 2022-24.

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