17 Jul 2014
EM space focuses on Turkey and South Africa – Danske Bank
FXStreet (Edinburgh) - Chief Analyst Lars Christensen at Danske Bank underlines the relevance of today’s central banks’ meeting in both countries.
Key Quotes
“Two monetary policy decisions in the EMEA region today with the Turkish and the South African central bank announcing rate decisions”.
“We expect the South African Reserve Bank to keep its key policy rate unchanged at 5.5%, while we expect the Turkish central bank to cut by another 50bp to 8.75%. Both in line with consensus expectations”.
“Earlier in the year, the Turkish central bank (TCMB) hiked interest rates aggressively to curb the freefall in the Turkish lira. However, since then the lira has stabilised and the TCMB has started to ‘normalise’ rates”.
“We believe it is justified given continued relatively weak growth in the Turkish economy and the fairly strong lirabut it is also notable that inflation remains well above the TCMB’s official 5% inflation target and it is likely to be concerned that too aggressive a rate cut could put pressure on the lira”.
“So, even though the Turkish government has put considerable pressure on the TCMB, we expect only a 50bp cut to 8.25% – in line with consensus”.
“The South African central bank continues to face conflicting policy choices. While inflation continues to rise and is above the inflation target range of 3-6% at this time, the South African economy continues to struggle as economic activity is hit hard by strikes in the mining sector”.
“Despite weak growth, inflation hovers above the inflation target and in June we expect inflation to rise further, to 6.9% y/y, up from 6.6% y/y in May. This is something with which the South African central bank is clearly not comfortable”.
“Even though inflation remains elevated and above target, we think the SARB will wait to hike interest rates and believe that concerns about the weak economic growth outweigh inflation concerns”.
“Therefore, we expect the SARB to stay on hold, maintaining the key policy rate at 5.5%”.
Key Quotes
“Two monetary policy decisions in the EMEA region today with the Turkish and the South African central bank announcing rate decisions”.
“We expect the South African Reserve Bank to keep its key policy rate unchanged at 5.5%, while we expect the Turkish central bank to cut by another 50bp to 8.75%. Both in line with consensus expectations”.
“Earlier in the year, the Turkish central bank (TCMB) hiked interest rates aggressively to curb the freefall in the Turkish lira. However, since then the lira has stabilised and the TCMB has started to ‘normalise’ rates”.
“We believe it is justified given continued relatively weak growth in the Turkish economy and the fairly strong lirabut it is also notable that inflation remains well above the TCMB’s official 5% inflation target and it is likely to be concerned that too aggressive a rate cut could put pressure on the lira”.
“So, even though the Turkish government has put considerable pressure on the TCMB, we expect only a 50bp cut to 8.25% – in line with consensus”.
“The South African central bank continues to face conflicting policy choices. While inflation continues to rise and is above the inflation target range of 3-6% at this time, the South African economy continues to struggle as economic activity is hit hard by strikes in the mining sector”.
“Despite weak growth, inflation hovers above the inflation target and in June we expect inflation to rise further, to 6.9% y/y, up from 6.6% y/y in May. This is something with which the South African central bank is clearly not comfortable”.
“Even though inflation remains elevated and above target, we think the SARB will wait to hike interest rates and believe that concerns about the weak economic growth outweigh inflation concerns”.
“Therefore, we expect the SARB to stay on hold, maintaining the key policy rate at 5.5%”.