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    This week in EM: Brazil boosts currency defense, while India and Turkey hike rates

    Synopsis

    India’s rupee fell even after the central bank unexpectedly raised its policy rate for the first time since 2014.

    Rupee-Think
    By Yumi Teso, George Lei and Alex Nicholson

    Emerging markets had a rocky week as plunging currencies prompted India and Turkey to raise interest rates to halt a rout in the rupee and lira, with only partial success. Brazil rolled out enough financial ammunition to arrest the real’s slump to a two-year low.

    The MSCI Emerging-Market Currency Index fell for a second week, sliding 0.1 per cent, while a gauge that tracks developing-market equities rose 0.7 per cent, after dropping almost 3 per cent in the previous three weeks. The Bloomberg Barclays index of EM local currency debt declined 0.3 per cent, snapping a two-week rally.

    Highlights for the week ended June 8:
    Group of Seven leaders gathered on Friday as Canadian Prime Minister Justin Trudeau attempted to salvage the meeting amid President Donald Trump’s furor on trade

    Trump will exit the summit early and head directly to Singapore to meet North Korean leader Kim Jong Un; Trump wants Kim to commit to a timetable for nuclear disarmament, according to a US official, and may sign an accord to formally end the Korean War

    Chinese President Xi Jinping and Russian counterpart Vladimir Putin to meet in China before the Singapore summit

    ECB Chief Economist Peter Praet signaled the monetary authority’s first formal round of talks on when to stop buying bonds is imminent

    Brazil’s real strengthened after repeated intervention from the central bank

    The Turkish lira was the best performing currency after a surprise decision to hike rates on Thursday for the third time in less than two months; additional tightening will come if needed

    India’s rupee fell even after the central bank unexpectedly raised its policy rate for the first time since 2014, setting the stage for a gradual tightening cycle

    Argentina secured a $50 billion credit line from the International Monetary Fund to help restore investor confidence

    The US and China continued to haggle over the shape of a deal to fend off an impending trade warChina reiterated that it’s willing to increase imports from the US if the world’s two largest economies meet half-way in trade talks

    Asia:
    North Korea will get relief from international sanctions only if it shows irreversible moves toward denuclearization, U.S. Secretary of Defense James Mattis said

    The Chinese yuan was among Asia’s best performers; the U.S. reached a deal to allow Chinese telecommunications company ZTE to get back into business

    China’s foreign reserves fell to $3.11 trillion at end-May from $3.12 trillion in April
    Exports rose 12.6 percent in May, faster than a forecast of 11.1 percent, while imports surged 26 percent, leaving a trade surplus $24.9 billion

    Malaysia’s ringgit declined; central bank Governor Muhammad Ibrahim resigned after Finance Minister Lim Guan Eng raised questions about the bank’s purchase of land from the previous administration
    The government will propose a sales tax and removing a fake news law and GST at parliament sitting starting July 16, Prime Minister Mahathir Mohamad said

    The rupiah remains under downward pressure; Bank Indonesia Governor Perry Warjiyo said he’s ready to hike again if needed

    Rupiah’s stability is the central bank’s short-term focus and it sees a daily average rate of 13,800-14,100 next year, the governor said

    The Philippine peso weakened; inflation accelerated less than expected in May at 4.6 percent and Budget Secretary Benjamin Diokno said price pressures are expected to ease further

    Policy makers expect timely increase in key rate will help arrest second-round effects by tempering buildup in inflation expectations, according to minutes of May 10 meeting

    Exports slipped the most since July 2016, falling 8.5 percent on the year in April

    Thailand’s baht was little changed; the nation will leave its policy rate on hold through 2018, according to a finance ministry official

    EMEA:
    The Russian ruble strengthened; Bank of Russia can manage possible inflation risks from government policies aimed at boosting economic growth, Governor Elvira Nabiullina said; data showed growth in consumer-price index stayed at an annual 2.4 percent for a third month in May

    The central bank got another reason to resume cutting interest rates from the latest data on inflation, according to First Deputy Governor Ksenia Yudaeva

    Russia has stable, though slow economic growth, President Putin said

    Putin signed law on countermeasures against U.S. and its allies that introduce sanctions against Russia, Interfax reported; meanwhile, President Trump broke with G-7 to urge Russia’s return to the group

    The central bank warned that more than two in five of the country’s lenders would struggle to cope with a sharp decline in oil prices

    The Turkish lira rallied for a second week; Turkey may hold repeat elections if voters choose an opposition parliament that refuses to cooperate with President Recep Tayyip Erdogan, said Mehmet Ucum, a chief adviser to the president

    The central bank will “stay independent, period, ” Deputy Prime Minister Mehmet Simsek told German daily Handelsblatt

    The annual inflation rate rose to 12.2 percent in May from 10.9 percent the previous month
    The South African rand was among the worst performers as the nation’s economy shrank by an annualized 2.2 percent in the first quarter of the year compared with the prior three months; Purchasing Managers Index fell to the neutral mark of 50

    Polish zloty outperformed as the central bank kept benchmark interest rate unchanged at 1.5 percent, as expected

    The Central Bank of Nigeria “may conduct bi-weekly bidding sessions” for Chinese renminbi

    Latin America:
    Brazil’s real rose on central bank intervention; authorities said in minutes of their latest meeting that monetary policy is guided by inflation expectations, economic activity, and the balance of risks; at the time, policy makers decided to hold the Selic at 6.5 percent.

    Industrial production rose 0.8 percent in April after falling 0.1 percent in March

    Mexico’s peso was among the biggest losers; annual inflation slowed to 4.51 percent in May from 4.55 percent in April

    Economy Minister Ildefonso Guajardo said that the US decision to apply tariffs on steel and aluminum exports is designed to pressure the nation into quickly accepting American proposals on Nafta

    Mexico will slap tariffs of 25 percent on certain cheese products, steel and Tennessee whiskey while imposing taxes of 20 percent on pork, apples and potatoes

    Trump is seriously considering separate trade negotiations with Canada and Mexico but doesn’t plan to withdraw from the North American Free Trade Agreement, White House economic adviser Larry Kudlow said

    The Argentine peso extended a seven-week losing streak even as the nation secured a $50 billion deal with the International Monetary Fund; the central bank withdrew its support for the peso at 25 per dollar level, bank president Federico Sturzenegger said
    '
    Upcoming data and events:
    Monday, June 11 Turkey 1Q GDP, April current-account balance, expected inflation for next 12 months Malaysia, Mexico April industrial production

    Tuesday, June 12 US-North Korea Summit in Singapore India May consumer price index, April industrial production Argentina Monetary policy decision

    Wednesday, June 13 Chile Monetary policy decision Turkey April industrial production South Korea local elections South Africa, Brazil April retail sales

    Thursday, June 14 China May retail sales, industrial production, fixed-asset investment India May wholesale price index

    Friday, June 15 Russia Monetary policy decision India May trade data Colombia April retail sales, industrial production.




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    Download The Economic Times News App to get Daily Market Updates & Live Business News.

    Subscribe to The Economic Times Prime and read the Economic Times ePaper Online.and Sensex Today.

    Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price

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