What Has Changed in EM

  • Reserve Bank of India surprised markets with a 35 bp cut to 5.4%
  • Philippines central bank cut rates 25 bp to 4.25%, as expected
  • Bank of Thailand surprised markets with a 25 bp cut to 1.5%
  • Turkey central bank fired several high-ranking officials
  • Brazil pension reforms were passed by the Lower House by a vote of 370-124
  • Peru’s central bank joined the ranks of the easing and cut rates 25 bp to 2.5%

Reserve Bank of India surprised markets with a 35 bp cut to 5.4%.  Consensus saw a 25 bp cut.  Governor Das said a 25 bp move was “inadequate” whilst a 50 bp was “excessive.”  The RBI cut its growth forecast for the current FY2019 beginning April 1 by a tick to 6.9%.  It also see inflation remaining below the 4% target for the rest of the year.  With the economy remaining sluggish, we expect another rate cut at the next policy meeting October 4.

Philippines central bank cut rates 25 bp to 4.25%, as expected.  The bank noted that the current global environment provides room for further easing.  It also cut its inflation forecasts for this year and next to 2.6% and 2.9%, respectively.  The Philippines just reported July CPI at 2.4% y/y vs. 2.7% in June, the lowest since December 2016 and near the bottom of the 2-4% target range.  Q2 GDP was also reported, with growth slowing to 5.5% y/y vs. 5.9% expected.

Bank of Thailand surprised markets with a 25 bp cut to 1.5%.  Consensus saw steady rates.  The vote was 5-2, with the bank implying more cuts are possible as growth is expected to slow and inflation likely to come in below target.  CPI rose 1.0% y/y in July, right at the bottom of the 1-4% target range.  The Finance Ministry expects to add fiscal stimulus this year.

Turkey central bank fired several high-ranking officials, including chief economist Hakan Kara. Others that were fired include the central bank’s head of research, the banking department chief, and the risk management chief. No reasons were given for the departures, which come about a month after the sacking July 6 of former Governor Murat Cetinkaya. Who needs all these senior positions when President Erdogan is making all the decisions?  This is a sad day for Turkey’s institutions.

Brazil pension reforms were passed by the Lower House by a vote of 370-124. After this second round vote, the plan now goes to the Senate. This version of reforms is expected to generate savings of more than BRL900 bln over the next ten years. The government hopes that the Senate will complete its two rounds of voting between September 20-30, and that it will remain intact from the lower house version.

Peru’s central bank joined the ranks of the easing and cut rates 25 bp to 2.5%.  The market was nearly split.  The bank said the cut does not imply additional cuts whilst noted that its inflation forecasts have a downward bias.  Lower copper prices are likely to weigh on the economy, necessitating more rate cuts ahead.