“The interest rate hike season has opened”

The central banks of emerging economies are making progress in closing the fence on inflation. The market anticipates that the Central Bank of Brazil will raise its interest rate this Wednesday, in what will be a second consecutive hike from 2% where it remained for several months.

In this way, Brazil will extend the fence that the Central Bank of Russia and Turkey have also raised for the second month.

BNP Paribas strategists reported in an analysis that conditions of high food prices and changes in inflation expectations are marking “a point of return” for central banks of emerging economies.

“Rate hike season has started after last year’s global cut cycle. Central banks in developed markets promise to keep rates low for a long time, but in emerging markets central banks are already applying increases, “they stated.

The pressure that is being generated in consumer prices is also perceived in advanced economies. In fact, US Treasury Secretary Janet Yellen explained in an interview that “an interest rate hike may be required to prevent the economy from overheating as more investment programs move forward.

“It may be that interest rates have to go up somewhat to ensure that our economy does not overheat. Although the additional spending is relatively small relative to the size of the economy, ”Yellen said.

Experts from the International Monetary Fund (IMF) believe that the central banks of advanced economies have more space and tools to respond to the pressure.

Mexico among the emerging

Within the BNP Paribas analysis entitled Monetary policy in emerging markets: Turning point, they predicted that more hikes in rates are coming from Brazil, Russia, Chile, Hungary, the Czech Republic. And they estimate that for next year, South Africa, Poland and Colombia will also raise the fence. The economic analysis team at Barclays agrees with them, adding Malaysia, Indonesia and India to the list of expectations of emerging central banks with rising rates.

The situation for Mexico is not so clear to analysts, despite the consistent pressures that inflation has been presenting since last year, particularly in the food sector. In fact, Barclays experts estimate that in the third quarter there will be two more rate cuts in Mexico, and that it will close the year with a level of 3.50 percent.

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In contrast, BNP Paribas strategists believe that the Mexican rate will remain unchanged at 4 percent.

Manual strategies

The IMF developed a monographic analysis of inflation in its annual report, “World Economic Outlook” where it highlighted that the monetary policy frameworks for emerging economies have improved in the last decade.

Inflation expectations are much better anchored, inflation is less persistent, and inflation risk has fallen in most of them. However, they noted that “this progress has not been uniform and some countries still have high volatility in inflation that could limit the possibility of maintaining the accommodative policy.”

“The rapid rise in food prices could put pressure on inflation, and especially temporarily put pressure on expectations, particularly for countries in Africa and Asia.”

In a separate analysis, the Bank for International Settlements says that “the strategy manual of the central banks of emerging economies facing a financial crisis requires that monetary policy be drastically tightened to stop massive capital outflows and a strong depreciation of the coin”.


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