1、|FOCUS 07/05/2019 1 With little global inflationary pressures,loosening global financial conditions,and shrinking risks of a global recession,we think the global backdrop is positive for EM risk assets-though selectively.An accommodative Fed supports our positive view on EM.Our indices suggest no do
2、llar scarcity in EM,a situation that is unlikely to change amid good liquidity conditions and more supportive risk levels.More accommodative EM central banks can also boost asset prices in some countries by delaying credit cycles(see:EM Strategy-Inferring credit cycles from EM asset prices)and boost
3、ing portfolio inflows(see:EM Flows-Models projections point to the upside).MARKET VIEWSFig.1:Number of EM countries changing policy rates during the year Fig.2:Implied policy rate changes expected in 12m(pp,simple average)Sources:Bloomberg,IMF,BNP Paribas.Considering 23 emerging markets.For 2019,inc
4、ludes both rate changes YTD and BNPP forecasts for the rest of 2019.Sources:Bloomberg,BNP Paribas.Expectations as implied in 1y1y futures curves,from a basket of 16 EM,taking the different from actual policy rates.ECONOMICS|EMERGING MARKETS FOCUS|EMERGING MARKETS 07 May 2019 EM monetary policy:Easin
5、g ahead KEY MESSAGES We see a shift in EM monetary policy from hiking last year to easing this year.Contrary to 2018,we see more EM central banks cutting rates this year.Differentiation remains,as not all EM are equal:our forecasts point to a few EM central banks hiking rates this year.Global and lo
6、cal factors are at play.Globally,rates in advanced markets look set to stay low for long.Locally in EM,cyclical and structural factors argue for lower rates.Barring recent moves in oil prices and the USD,inflation in advanced economies is low and central banks are likely to remain accommodative,we t
7、hink.Monetary policy in EM is shifting,from hiking last year to easing this year.Contrary to 2018,we now expect more EM central banks to cut rates this year(see Fig.1).To be sure,there is variance within EM.We expect some central banks will finish 2019 with higher policy rates than they started the
8、year including likely upcoming rate hikes in Chile and Colombia,and hikes already in the bag in Czech and Hungary.Still,we foresee policy rates lower in December 2019 from a year earlier in a variety of countries,including Egypt,Indonesia,Mexico,South Africa,South Korea and Turkey.Similarly,local yi
9、eld curves across a sample of EM have shifted in recent months,from having priced in rate hikes over the last couple of years to now pricing in a more accommodative stance going ahead(see Fig.2).We think global as well as local factors are at play,including prospects for policy rates in advanced eco
10、nomies to stay low for long,as well as cyclical and structural factors within EM.Please refer to important information and MAR disclosures at the end of this report Marcelo Carvalho,Global Head of Emerging Markets Research Luiz Eduardo Peixoto,Emerging Markets Economist|BNP Paribas London branch 051
11、0152019,BNPPforecasts2018,actualOn holdRate hikesRate cuts-1-0.500.511.520910111213141516171819|FOCUS 07/05/2019 2 Structural factors Beyond a global low-for-long inflation and rates backdrop,some structural factors within EM also argue for lower interest rates:EM inflation has trended lower over th
12、e years(Fig.5).Despite fluctuations in EM currencies over the years,pass-through to inflation has generally proven more moderate and short-lived perhaps counteracted by,among other things,stronger monetary policy frameworks.Low wage pressures.Unemployment has been stubbornly high in a number of EM c
13、ountries(including Brazil and South Africa),while in others high labour market informality has meant scant transmission to wages(India,Mexico and Colombia).In the CEE,flexible labour laws have limited wage pressures from record low unemployment.Room for fiscal stimulus is narrow.As we outlined in EM
14、 Fiscal Monitor On the(rocky)consolidation path,the public sector is constrained by age-related pressures,limited revenue capacity,or both.Central banks,in turn,may feel the need to fill the void when growth disappoints.More solid monetary and fiscal frameworks.Many EM have embarked on a reformist a
15、genda,with advances in recent years helping to cushion currency shocks and thus reducing the need for sudden,sharp rate increases.Flexible currency regimes.A higher proportion of floating exchange rates helps create a buffer to dampen the impact of shocks,reducing risks associated with the external
16、accounts(see Fig.6).Cyclical factors In EM,we are generally on the low side of consensus on inflation and policy rates for 2019.We think a range of cyclical reasons contribute to this view:Consumer price inflation remains tame so far this year in most EM,with measures of core inflation generally run
17、ning below headline inflation(see Fig.3).While a few countries like Argentina and Turkey do face double-digit inflation currently,we see this as an exception to the broader rule.Commodity prices look unlikely to rock the inflation boat.With the end of weather-related events hurting grain crops and p
18、lentiful stocks,we expect food price inflation to be relatively contained in most EM.As for energy costs,while oil price gyrations can bring volatility,we do not assume runaway global energy prices from here(see Oil under supply management).Relatively slow GDP growth looks set to keep output gaps op
19、en in EM.Although individual circumstances can vary across countries,our aggregate measure of EM output gap shows plenty of economic slack in EM as a whole(see Fig.4).With not many EM expected to grow faster than potential anytime soon,the overall EM output gap looks set to remain open for a while.F
20、ig.3:BNP Paribas emerging markets CPI index(%y/y)Source:National statistics agencies,Macrobond,BNP Paribas.BNPPs EM CPI index includes data for 21 countries,weighted by GDP size.Reasons to expect monetary easing across EM in 2019 ECONOMICS|EMERGING MARKETS Fig.6:Currency regimes in EM(1980-2018)Sour
21、ces:IMF ARER(2018,2015),BNP Paribas Fig.5:Inflation rates as a percentage of EM(%)Sources:IMF,World Bank,BNP Paribas 0%20%40%60%80%100%1980199020002010Float or managedfloatPegHard pegFig.4:EM output gap*(in pp of GDP)Sources:WTO,Bloomberg,IMF,Macrobond,BNP Paribas.*Output gap as measured by BNPPs EM
22、 GDP tracker for 22 countries,weighted by GDP size.Marcelo Carvalho,Global Head of Emerging Markets Research Luiz Eduardo Peixoto,Emerging Markets Economist|BNP Paribas London branch|FOCUS 07/05/2019 3 Monetary policy rate forecasts:Our 2019 map ECONOMICS|EMERGING MARKETS Sources:Bloomberg,BNP Parib
23、as.The map shows our view on policy rate action for 2019.Fig.7:BNPPs EM monetary policy rate index (difference between policy rate increases minus cuts,in number of observations)Line shows the 3mma difference between monetary policy increases minus rate cuts,for 26 EM countries,in a number of observ
24、ations.Shaded areas stand for total amount of central bank rate cuts(green)or rate hikes(rose).Sources:Bloomberg,National central banks,BNP Paribas.Rate hikes in 2019 On hold throughout 2019 Rate cuts in 2019 BNP Paribas forecasts for the year and actual changes year-to-date Rate cuts Rate hikes Mex
25、ico We expect 50bp of rate cuts in 2019,as both GDP growth and inflation slow Egypt We expect around 200bp of cuts this year and the next Turkey As inflation eases and the current account narrows,we expect room for eventual easing this year South Africa Our below-consensus view calls for one 25bp ra
26、te cut this year Brazil Downside surprises to both inflation and growth could argue for one extra cut,but pension reform remains key India With inflation low and a dovish Fed,a focus on supporting growth rates could lead to more monetary easing this year Poland We expect inflation concerns leading t
27、o rate hikes,but only in 2020,not this year Indonesia A narrowing current account deficit and a more appreciated currency could pave the way for policy rate cuts Marcelo Carvalho,Global Head of Emerging Markets Research Luiz Eduardo Peixoto,Emerging Markets Economist|BNP Paribas London branch-20-100
28、102030 Central and Eastern Europe bucking the trend?Major Central European countries have been enjoying strong growth and recent signs of pick-up in wage inflation have led to expectations of rate hikes during 2019.We,however,expect dovish tones to prevail for now.Lingering concerns over fragile act
29、ivity,given the slowdown in the eurozone,could mean that monetary authorities are unlikely to further tighten their bias significantly for now.The dovish central banks of Poland and Romania will likely wait for 2020 before hiking rates,we think.Despite tight labour markets and a fiscal package of 2p
30、p of GDP announced by Warsaw,we continue to expect hikes by the Polish central bank only in 2020,when inflation risks become more apparent(see Poland:Rise in April CPI increases rate hike pressure).After tightening its policy significantly,we think the Czech Republic is done with tightening,and expe
31、ct stable rates for the coming 12 months(see Czech Republic:CNB hikes one(last)time).For its part,the Hungarian central bank has maintained its dovish bias with the base rate at the lowest level in the region(0.9%).We expect only modest tightening in Hungary this year,by 15bp of its base rate.In Sou
32、th Africa,we think that a weak growth backdrop and scope for further downside surprises to the central banks inflation estimates will open the door for more dovish rhetoric in the coming months.We pencil in one 25bp rate cut in September(South Africa Growthshedding and monetary policy).For the Middl
33、e East and North Africa,the US matters:Saudi Arabia and the UAE,in particular,are unlikely to move if the US does not,we think.The risks are mostly tilted to the downside,we flag,as Bahrain showed with a surprise 15bp cut to 3.10%on 20 March(see GCC Sentiment ahead of fundamentals for the full pictu
34、re).Egypt is a more interesting story.With aggressive easing expected,we see rate cuts likely adding up to 200bp by end-2019(see Egypt-rate cuts likely on hold until H2 2019).In emerging Asia,faced with a deceleration in growth,central banks could shift into more expansionary policies.We believe tha
35、t low inflation and concerns over lingering risks to growth from a slowdown in trade,policy uncertainties,and China could spur a more dovish tone in the region as well.In addition,for higher-yielding economies like Indonesia and to a degree India a more dovish Fed gives some confidence that rate cut
36、s will not hurt interest rate differentials,and in turn,capital flows.In India,in addition to the two 25bp rate cuts that were delivered,we think the door is open for one more rate cut in H2 2019,particularly if growth decelerates.An easier policy is also perceptible from liquidity injections to the
37、 banking system(Reserve Bank of India:Wait and see).In Indonesia,while it might be early to pencil in rate cuts,evidence that the current account deficit is on track to narrow to 2.5%of GDP could give the central bank confidence to ease in order to support growth,especially if the currency is well s
38、upported.In Malaysia,the central bank cut its policy rate by 25bp on 7 May,its first rate cut since 2016.We think the board took a dovish turn due to soft activity data so far this year and has kept the door open for further rate cuts.Thailand could swim against the tide of rate cuts and stay on hol
39、d,as its central bank places financial frailties as a top concern,and inflation remains around its target range of 1-4%.|FOCUS 07/05/2019 4 Fig.9:Average monetary policy rate,EM Sources:Bloomberg,National central banks,BNP Paribas.Sample includes 19 EM.Regional analysis:Easing in most places ECONOMI
40、CS|EMERGING MARKETS Emerging Markets 360 team In Latam,policy rate expectations have fallen.Inflation near or below centre targets and sluggish growth perspectives have led to the postponement of expected rate hikes(Colombia and Chile),and rekindled talks of a resumption of monetary easing in Brazil
41、.In Colombia,we have reduced our below-consensus call for two rate hikes this year to one,while in Chile we postponed our rate hike expectation to December.One of the most dramatic changes in our outlook for the year has been in Mexico.Despite elevated policy uncertainty,we expect two 25bp cuts in Q
42、4,with inflation near target and slower GDP growth putting a damper on core CPI.In Argentina,where the central bank sets its policy rate daily in order to avoid breaches to its set currency band limits,volatility is likely to stay high ahead of the 2019 election.Fig.8:Average policy rate,by region S
43、ources:Bloomberg,National central banks,BNP Paribas.Sample includes 5 Latam,6 EM Asia,and 7 CEEMEA economies.4.04.55.05.56.06.51011121314151617181920Simple averagePriced in,by end-2018Priced in,29 Apr3579080910111213141516171819APACCEEMEALatam|FOCUS 07/05/2019 5 Our forecasts ECONOMICS|EMERGING MARK
44、ETS Emerging Markets 360 team Policy rate changes expected by BNPPs EM team(in basis points)-400-300-200-1000100TurkeyThailandSouth KoreaSouth AfricaSaudi ArabiaRomaniaPolandMexicoMalaysiaIndonesiaIndiaHungaryEgyptCzech Rep.ColombiaChinaChileBrazilWithin 6mEnd-2019Within 12m Current policy rate Bias
45、(recent)Real,ex-ante*End-2019 BNPP forecasts 6.50%Neutral 2.6%6.50%3.00%Neutral 0.3%3.00%4.35%Neutral-to-dovish 2.1%4.35%4.25%Dovish 1.2%4.25%2.00%Neutral-to-hawkish-0.3%2.00%15.75%Dovish 6.8%14.75%0.90%Neutral-2.5%0.90%6.00%Dovish 1.7%6.00%6.00%Dovish 2.2%6.00%3.00%Dovish 0.4%3.00%8.25%Neutral-to-h
46、awkish 4.1%8.25%1.50%Neutral-0.8%1.50%2.50%Neutral-0.2%2.50%3.00%Neutral 0.5%3.00%6.75%Neutral-to-dovish 1.4%6.50%1.75%Dovish 0.0%1.50%1.75%Neutral 0.6%1.75%24.00%Dovish 8.5%21.00%Sources:National statistics bureaus,IMF,Bloomberg,BNP Paribas.*Calculated with the difference in expected CPI in 12m,acc
47、ording to Bloomberg/IMF/national sources.Rate cuts Rate hikes This document has been written by our Strategist and Economist teams within the BNP Paribas group of companies(collectively“BNPP”);it does not purport to be an exhaustive analysis,and may be subject to conflicts of interest resulting from
48、 their interaction with sales and trading which could affect the objectivity of this report.This document is non-independent research for the purpose of the UK Financial Conduct Authority rules.For the purposes of the recast Markets in Financial Instruments Directive(2014/65/EU)(MiFID II),non-indepe
49、ndent research constitutes a marketing communication.This document is not investment research for the purposes of MiFID II.It has not been prepared in accordance with legal requirements designed to provide the independence of investment research,and is not subject to any prohibition on dealing ahead
50、 of the dissemination of investment research.The content in this document/communication may also contain“Research”as defined under the MiFID II unbundling rules.If the document/communication contains Research,it is intended for those firms who are either in scope of the MiFID II unbundling rules and
