EM Central Bank Preview for Thursday

This Thursday sees four EM central bank meetings. None are expected to move, but we believe Asia for the most part has a dovish bias and Latin America a hawkish one.

Bank of Korea meets and is expected to keep rates steady at 1.5%. Although core CPI remains elevated at 2.1% y/y, headline is running at a relatively benign 0.9% y/y in October, and is below the 2.5-3.5% target range. We suspect the bank will prefer to see the reaction from the first Fed hike before pulling the trigger on another cut. Effects of fiscal stimulus will likely be gauged by the BOK before it acts again, while Finance Minister Choi is sounding more upbeat on the economy. The last move was a 25 bp cut to 1.5% in June, but we think the bank will cut rates further in 2016 if the data remain soft. Bloomberg consensus sees only 25 bp of easing through 2016.

The Philippine central bank meets and is expected to keep rates steady at 4%. Data has come in on the firm side recently, despite the external headwinds. Inflation remains very subdued at 0.4% y/y in October, well below the 2-4% target range. However, upside risks are present due to the El Nino effect and its pass-through. Monetary policy seems to be roughly in balance at the moment. The last move was a 25 bp hike in its policy rates in September 2014, but we think the bank will lean more dovish in 2016 if the data remain soft. Bloomberg consensus sees a modest 50 bp or so of tightening in 2016, but we disagree.

Chile central bank meets and is expected to keep rates steady at 3.25%. The market is mixed, however. Of the 28 analysts polled by Bloomberg, 8 see a 25 bp hike to 3.5% while 20 see no change. CPI rose 4.0% y/y in October, down from 4.6% in September and right at the top of the 2-4% target range. The last move by the central bank was a 25 bp hike to 3.25% in October that started the tightening cycle, but we know that no hike was also discussed. With the economy sluggish and inflation falling, the tightening cycle is not expected to be an aggressive one. Bloomberg consensus sees roughly 25 bp per quarter of tightening through 2016, which seems too hawkish to us.

Peru central bank meets and is expected to keep rates steady at 3.5%. The last move was a 25 bp hike to 3.5% in September that started the tightening cycle. Inflation was 3.66% y/y in October vs. 3.90% in September, but remains above the 1-3% target range. However, it has fallen from the 4% y/y peak in August and we think disinflation should continue. The economy remains sluggish and so an aggressive tightening cycle seems unlikely. Bloomberg consensus sees roughly 25 bp every other quarter of tightening through 2016, which sounds right to us. Copper is making new cycle lows, which should weigh on growth in both Peru and Chile.