EM Preview for the Week of December 18, 2022

December 18, 2022

EM FX was mostly softer last week as markets finally recognized the likelihood that aggressive monetary tightening globally will continue well into next year. In turn, this raises global recession risks and so the backdrop for EM remains poor near-term. HUF, CZK, and RON outperformed last week while RUB, CLP, and ZAR underperformed. Cold weather is hitting Europe and the U.K. at a time when Qatar is threatening to cut off supplies to the EU over a corruption scandal and so we see risks of renewed economic stress. As a result, we suspect risk sentiment will remain sour going into year-end and should keep EM FX under some pressure.


Colombia reports October GDP proxy Monday. Growth is expected at 5.2% y/y vs. 4.2% in September. Central bank minutes will be released Tuesday. At last week’s meeting, the bank hiked rates 100 bp to 12.0%, as expected. There were two dissents, with one voting for a 25 bp hike and one voting for a 125 bp hike. Governor Villar said ““We are getting close to the end of the cycle of rate rises, which doesn’t necessarily mean that are we are there yet,” adding that food prices should fall next year and drag headline inflation lower. The swaps market is pricing in a peak policy rate between 13.0-13.25%.

Brazil reports November current account and FDI data Wednesday. Mid-December IPCA inflation will be reported Friday and is expected at 5.88% y/y vs. 6.17% in mid-November. At the last policy meeting December 7, COPOM left rates steady at 13.75%, as expected. However, the minutes were very hawkish in noting that “The Committee evaluated that changes in parafiscal policies or the reversal of structural reforms that lead to a less efficient allocation of resources might reduce the power of monetary policy,” adding that policymakers discussed “extensively” the impact of “different fiscal scenarios” on asset prices, inflation expectations, and neutral interest rates. The swaps market is pricing in 50 bp of tightening in 2023 that would see the policy rate peak between 14.0-14.25%, but much will depend on incoming President Lula’s fiscal stance.

Chile central bank minutes will be released Thursday. At that December 6 meeting, the bank left rates steady at 11.25%, as expected, and stressed that “Inflation remains very high and its convergence to the 3% target is still subject to risks. The Board will maintain the monetary policy rate at 11.25% until the state of the macroeconomy indicates that this process has been consolidated.” The swaps market is pricing in the start of an easing cycle in Q1, which seems too soon.

Mexico reports mid-December CPI Thursday. Banco de Mexico just hiked rates 50 bp to 10.5% last week, as expected, and noted that “The Board considers it will still be necessary to raise the reference rate in its next monetary policy meeting. Subsequently, it will assess if the reference rate needs to be further adjusted as well as the pace of adjustments based on the prevailing conditions.” The swaps market is pricing in a peak policy between 10.75-11.0%. October GDP proxy and November trade data will be reported Friday.


Poland reports November industrial output and PPI Tuesday. The former is expected at 2.5% y/y vs. 6.8% in October, while the latter is expected at 21.2% y/y vs. 22.9% in October. Real retail sales construction output will be reported Wednesday. The former is expected at -0.3% y/y vs. 0.7% in October while the latter is expected at -2.2% y/y vs. 3.9% in October. At the last meeting December 7, the central bank left rates steady at 6.75%, as expected. The swaps market is pricing in one more 25 bp hike over the next six months.

National Bank of Hungary meets Tuesday and is expected to keep the base rate steady at 13.0%. At the last policy meeting November 22, the bank left rates steady at 13.0%, as expected. It noted that "Tight monetary conditions will be maintained over a prolonged period, which will ensure that inflation expectations are anchored, and the inflation target is achieved in a sustainable manner.” It added that monetary policy tightening would continue with the reduction of interbank liquidity and announced a two-month deposit tender and several FX swap tenders. The swaps market is pricing in the start of an easing cycle over the next three months, which seems too soon given how high inflation remains. Q3 current account data will be reported Thursday.

Czech National Bank meets Wednesday and is expected to keep rates steady at 7.0%. At the last policy meeting November 3, the bank left rates unchanged at 7.0%, as expected. Two dissents favored a 75 bp hike but were easily outvoted by the five does. The bank said rates were at a level that is taming demand pressures and that rates would remain “relatively” high for some time. Governor Michl said then the next move would be no change or a hike. The swaps market is pricing in the start of an easing cycle over the next three months, which seems too soon given how high inflation remains.

Turkey central bank meets Thursday and is expected to keep rates steady. At the last policy meeting November 24, the bank cut rates 150 bp to 9.0% and noted that “the current policy rate is adequate and decided to end the rate-cut cycle that started in August.” It added that additional measures “supporting the effective transmission” of monetary policy would be implemented soon, which suggests some macroprudential easing ahead. The country continues to careen towards a full-blown economic crisis due to an unsustainable policy mix. The best that President Erdogan can hope for is that it will come after the June elections.


Malaysia reports November trade data Monday. Exports are expected at 13.2% y/y vs. 15.0% in October, while imports are expected at 21.8% y/y vs. 29.2% in October. CPI will be reported Friday, with headline expected to drop a tick to 3.9% y/y. At the last policy meeting November 3, Bank Negara hiked rates 25 bp to 2.75%, as expected, and noted that the hike would “pre-emptively manage the risk of excessive demand on price pressures consistent with the recalibration of monetary policy settings that balances the risks to domestic inflation and sustainable growth.” It added that it is not on any pre-set course and that future decisions will remain data dependent as well as “measured and gradual.” While the bank does not have an explicit inflation target, still-high price pressures should keep the gradual tightening cycle going for now. The swaps market is pricing in a peak policy rate near 2.75% but we see upside risks if inflation remains elevated.

China commercial banks set their Loan Prime rates Tuesday. After the PBOC left its key MLF rates steady last week, the 1- and 5-year LPR are expected to also be steady at 3.65% and 4.30%, respectively. For now, we suspect policymakers will remain on hold to see how the reopening develops. If weakness continues in the new year, expect more stimulus to come in Q1. At the economic policy forum this past weekend in Beijing, a senior official pledged that existing pro-growth measures will be kept in place and that more policies to boost the economy will be seen.

Taiwan reports November export orders Tuesday. Orders are expected at -12.9% y/y vs. -6.3% in October. If so, it would be the third straight month of y/y contraction and weaker than the depths of the pandemic. IP will be reported Friday and is expected at -4.90% y/y vs. -3.56% in October. Of note, the subsidiary of Taiwan’s Foxconn announced it would sell its indirect minority stake in China’s state-backed semiconductor company Tsinghua Unigroup. This comes as the U.S. and other Western nations are taking steps to hinder China’s ability to produce sophisticated chips.

Korea reports trade data for the first twenty days of December Wednesday. Regional trade data have weakened considerably in recent months, not just from the mainland slowdown but also from overall global slowing. Meanwhile, tensions on the Korea peninsula are likely to remain high after North Korea tested two medium-range ballistic missiles over the weekend. This comes days after it tested a new solid fuel rocket engine that would enhance the nation’s ability to launch longer range missiles that can better evade detection.

Bank Indonesia meets Thursday and is expected to hike rates 25 bp to 5.5%. However, one see no change while a handful of analysts look for a larger 50 bp move. At the last meeting November 17, the bank hiked rates 50 bp to 5.25%, as expected. Governor Warjiyo said then that “This decision to raise rates is a front-loaded, preemptive and forward looking step to lower inflation expectations that are still high.” The bank said it would maintain its policy mix to sustain growth and is committed to keeping banking liquidity loose. Headline inflation appears to have peaked but core continues to accelerate and so the tightening cycle is likely to continue into 2023.

Singapore reports November IP and CPI data Friday. The former is expected at -1.0% y/y vs. -0.8% in October, while the latter is expected at 6.5% y/y vs. 6.7% in October. Of note, core CPI is expected to drop a tick to 5.0% y/y. While the Monetary Authority of Singapore doesn’t have an explicit inflation target, high inflation has led it to tighten five times over the past year. At the last policy meeting in October 14, the MAS tightened policy by adjusting the center of its S$NEER trading band and noted that “Singapore’s GDP growth will come in below trend in 2023, and downside risks have intensified. In the quarters ahead, the drag on economic activity from the globally synchronized tightening in monetary policy will intensify. While inflation should moderate, it will remain high for some time.” Next meeting is in April and it’s too early to say what it’s likely to do then.

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