Emerging central banks between the hammer of Covid and the anvil of inflation

Posted on Nov 20, 2020 at 7:15 am

Between the devil and the deep sea. Central banks in emerging economies find themselves caught between the need to continue supporting their economy and, for some, rising inflation. “Opting for accommodating monetary policies is no longer possible everywhere”, warns Gilles Moëc, chief economist at AXA IM. The hike in Turkish rates, which jumped 475 basis points against inflation close to 12% is an extreme case. “Their situation is much less problematic than that of Turkey, but India and, to a lesser extent, Mexico are also facing a resurgence of inflation which will compromise their ability to provide additional stimulus efforts.”, continues Gilles Moëc.

The choices can turn out to be tough. On Thursday, the Bank of Indonesia cut rates to 3.75%, their lowest level since 2016. An expected decision, as the country faces its deepest recession since the Asian crisis, there are more 20 years. On the same day, the Philippine central bank also cut rates, while at the same time it had to revise its inflation forecasts upwards. A minimal increase, 10 basis points, but due to a phenomenon that continues to grow: a rise in the price of foodstuffs.

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