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Emerging Market Economist, Emerginomics

Tatiana Orlova

Emerging Market Economist

Emerginomics

Thematic (Sector/Industry)

Turkey & russia / Thematic (Sector/Industry)

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<p>As EM assets remain under pressure, policymakers are increasingly switching into a tightening mode. Central Banks in Turkey, Argentina, India, Indonesia have hiked rates since last spring when pressures on EM currencies started building up. Has time come for Russia to join the hiking club?</p>
<p>Ahead of the CBR policy meeting scheduled for Friday 14 September, high geopolitical uncertainty complicates the regulator's job. The threat of a "nuclear option" of US sanctions that would ban US investors from holding new issues of Russian sovereign debt is one of the factors fuelling the sell-off in Russia's fixed income markets. Concerns about CBR's independence are probably adding to the pressure. Apart from that, the economy seems in a good shape. Should the CBR yield to the market pressure and hike its policy rate?</p>
<p>We don't think that time has come yet for the CBR to begin the next tightening cycle. To restore market confidence, government officials need to provide more details of the government’s response if the worst-case scenario for US sanctions plays out. The CBR should wait until the US lawmakers have made their decision, and then act if needed.  This week, it needs to sound hawkish; in the coming weeks, keeping its powder dry just in case seems a good idea.</p>
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As EM assets remain under pressure, policymakers are increasingly switching into a tightening mode. Central Banks in Turkey, Argentina, India, Indonesia have hiked rates since last spring when pressures on EM currencies started building up. Has time come for Russia to join the hiking club?
Ahead of the CBR policy meeting scheduled for Friday 14 September, high geopolitical uncertainty complicates the regulator's job. The threat of a "nuclear option" of US sanctions that would ban US investors from holding new issues of Russian sovereign debt is one of the factors fuelling the sell-off in Russia's fixed income markets. Concerns about CBR's independence are probably adding to the pressure. Apart from that, the economy seems in a good shape. Should the CBR yield to the market pressure and hike its policy rate?
We don't think that time has come yet for the CBR to begin the next tightening cycle. To restore market confidence, government officials need to provide more details of the government’s response if the worst-case scenario for US sanctions plays out. The CBR should wait until the US lawmakers have made their decision, and then act if needed.  This week, it needs to sound hawkish; in the coming weeks, keeping its powder dry just in case seems a good idea.


Markets Are Pushing CBR Towards a Hike. CBR Should Stay on Hold