Emerging Policy-Data vindicates doves but not all are cutting

November 14, 2012

Rate decisions last week in emerging markets well anticipated this week’s crop of economic data.

Russia for instance not only kept rates on hold last Friday (after raising them at its previous meeting) but struck a less hawkish tone than expected. Voila, data this week showed growth in the third quarter was 2.9 percent compared to 4 percent in April-June.

We’ll have to wait for November 30 to see what Poland’s Q3 growth numbers look like but data today shows inflation eased to two-year lows in October. That appears to vindicate the central bank’s decision to cut interest rates last week. for the first time in three years.  Simon Quijano-Evans at ING Bank writes:

Look for (emerging European) central banks to continue cutting rates over a 12-month period – everyone else has already done it

Well not quite everyone.  Chile’s central bank kept rates on hold yesterday at 5 percent for the 10th straight month, even though currency appreciation has been a headache. But with annual growth running at a robust 5 percent, analysts polled by Reuters expect rates to stay on hold over the next year.  Just goes to show how different emerging markets are from each other.

Also, Iceland (true, not strictly an emerging market) raised rates today by a quarter point as its economy continues to rebound from the 2008 collapse.

Looking ahead, we’ve got big rate meetings coming up next week in Turkey and South Africa and at least one will yield a rate cut. Watch this space.

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