Unexpectedly early interest rate cuts in India, Peru and Egypt on Thursday indicate that falling oil prices and gathering disinflationary pressures are accelerating a cycle of monetary easing in many emerging market economies, analysts said on Friday.
The easing in key EM economies – added to expectations that several more countries will also cut rates – stands in stark contrast to a recent market consensus that 2015 would herald upward pressure on EM rates as the US Federal Reserve espoused a tighter policy, analysts said. Read more
As Alan Beattie wrote recently, a clear divergence in monetary policy is polarising the emerging market (EM) universe. Some countries, such as China last Friday, have cut interest rates to invigorate demand while others, such as Russia and Brazil, have had to hike rates to battle inflation.
The divide is growing starker, forming a basic template for EM investors. Softer oil and commodity prices are subduing inflation in most countries, creating room for easier monetary conditions. Other countries, however, are still struggling with ideosyncratic frailties, preventing them from capitalising on the ebbing EM prices. Read more
Better safe than sorry? Chile on Thursday unexpectedly cut its benchmark interest rate by 25bps to 4.75 per cent on Thursday. It’s its first rate cut since January 2012.
Although economic growth for the country – forecast at between 4-4.5 per cent for this year – is still the envy of the region (Mexico and Brazil by contrast are expected to grow 1.7 per cent and 2.4 per cent respectively), it has weakened from previous estimates of 4-5 per cent. Read more
Is Chile edging closer to a rate cut?
Disappointing GDP data lately have certainly increased the chances. Chile’s growth – much lauded by a centre-right government bent on delivering a better performance than under the leftist coalition that ruled Chile for 20 years – has suffered a hiccup lately, fuelling expectations that a rate cut was nearing. Read more
Chile’s latest monetary policy report (IPoM) from the Central Bank (BCCh) paints a rosy picture to end the year on – more inflation and less growth in 2013. That’s nice. Read more
The Central Bank of Chile has announced year-on-year GDP growth of 5.7 per cent in the third quarter, beating consensus forecasts of 5.4 per cent. Domestic demand drove GDP growth despite external factors that are proving to be a drag on the economy. Read more
Colombia on July shocked the market with an interest rate cut (its first in two years) because of expectations of lower growth ahead. Will Chile follow suit this month?
Bold moves have been something of a hallmark of Chilean central bank monetary policy in the past, but as things stand, the odds are that the bank will sit out on a cut and leave its key policy rate at 5 per cent for a seventh straight month. Read more
The sense of uncertainty in the global economy is palpable, and rightly so. China is slowing – no one is sure by how much; Europe’s sovereign debt crisis is going from bad to worse – but no one knows how much worse it will get; and the US is still just muddling through.
So what’s a central banker in Latin America to do? Judging by the raft of rates decisions and minutes out this week – many of the region’s policy makers are happy taking the wait-and-see approach. Read more
Brazil wants to cut interest rates more; Colombia has increased rates three times in the last four months. But Chile looks likely to sit on its hands for now.
That is the signal from the minutes of the February meeting, released on Wednesday, in which it explained its decision to weigh, but reject, a 25 basis point cut from the current 5 per cent. Read more