All eyes on Poland’s central bank this week to see if it will finally join the monetary easing trend underway in emerging markets. Chances are it will, with analysts polled by Reuters unanimous in predicting a 25 basis point rate cut when the central bank meets on Wednesday. Data has been weak of late and signs are Poland will struggle even to achieve 2 percent GDP growth in 2013.
The big easing continues. A major surprise today from the Bank of Thailand, which cut interest rates by 25 basis points to 2.75 percent. After repeated indications from Governor Prasarn Trairatvorakul that policy would stay unchanged for now, few had expected the bank to deliver its first rate cut since January. But given the decision was not unanimous, it appears that Prasarn was overruled. As in South Korea last week, the need to boost domestic demand dictated the BoT’s decision. The Thai central bank noted:
Central bankers as carry traders? Why not.
As we wrote here yesterday, FX reserves at global central banks may be starting to rise again. That’s a consequence of a pick up in portfolio investment flows in recent weeks and is likely to continue after the U.S. Fed’s announcement of its QE3 money-printing programme.
One of the stories of this year has been the stupendous rally on emerging local currency debt, fuelled in part by inflows from institutional investors tired of their zero or negative-return investments in Western debt. Norway’s sovereign wealth fund said last week for instance that it was dumping some European bonds and spending more of its $600 billion war chest in emerging markets.
The Olympic medals have all been handed out and the athletes are on their way home. Which countries surpassed expectations and which ones did worse than expected? And did this have anything to do with the state of their economies?
This week has the potential to bring an interesting twist to emerging markets monetary policy. Peru, South Korea and Indonesia are likely to leave interest rates unchanged on Thursday but there is a chance of a rate rise in Russia. A rise would stand out at a time when central banks across the world are easing monetary policy as fast as possible.
So India has not joined emerging central banks’ rate-cutting spree . After recent rate cuts in Brazil, South Korea, South Africa, Philippines and Colombia, and others signalling their worries over the state of economic growth, hawks are in short supply among the world’s increasingly dovish central banks. But the Reserve Bank of India is one.
Another central bank has caved in and cut interest rates — South Africa lowered its key rate to a record low of 5 percent at Thursday’s meeting. In doing so, the central bank noted growth was slowing further. “Negative spillover effects (from the global economy) likely to intensify,” it said.