Emerging Policy-Philippines cuts, Mexico to hold steady?

October 25, 2012

Emerging market economies continue their trend to spur on growth rather than fight possible QE-induced inflation, with the Philippines cutting rates earlier today.

The Philippines’ central bank cut overnight rates by 25 bps to a new low of 3.5 percent for the borrowing window and 5.50 percent for the lending facility, a move helped by annual inflation at the lower end of the country’s 3 to 5 percent target band.

In fact, analysts and even central bankers in Asia appear less worried about the possible effects of the easy money sloshing around the world just now than regions like Latin America.

As Thailand’s central bank governor Prasarn Trairatvorakul told Reuters in an interview last month about the possible effects of QE3:

Part of those funds will spill over into our part of the world, I don’t think it will be as strong as during QE2

High-yielding Latin American economies have been more concerned, however, with food prices adding another layer of woe. In Mexico, the central bank left rates unchanged last month but signalled it might raise rates in future because of food price-induced inflation. The country’s central bank makes its policy decision tomorrow.

Mexico’s most recent inflation numbers haven’t been so bad, so most analysts expect rates to stay unchanged at 4.5 percent, where they have been for more than 3 years.

Analysts at Capital Economics say:

We expect emerging market inflation to quicken over the next six months, mainly due to faster food inflation. Nonetheless, a repeat of the food-led
inflation shocks of 2008 and 2011 does not look to be on the cards.

Food price inflation is outpacing headline inflation, particularly in Latin America, Capital Economics adds, though inflationary pressures are strongest in emerging Europe.

Next up in emerging Europe for rate decisions is Hungary next week, but after two shock rate cuts in September, most analysts don’t expect another one.








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