SA under pressure to raise interest rates – world analysts

EDINBURGH — South African economists have told Bloomberg that they do not expect South Africa to hike interest rates. But, analysts elsewhere believe there is huge pressure on the country to do just that. South Africa is part of the basket of emerging market countries that have seen their currencies hit amid concerns, and sell-offs, by global investors that the raising of rates by the US Federal Reserve may play into an emerging market crisis. Low interest rates have been used since the 2008 financial crisis as a way to get the world back on an even keel, however they depressed investors' returns in developed markets. This in turn meant investors shifted into emerging markets with a view to generating better returns. – Jackie Cameron.By Netty Ismail, Justin Villamil and Lilian Karunungan.___STEADY_PAYWALL___.(Bloomberg) – Investors are counting on central bank decisions in some of the hardest-hit emerging markets this week for an extended reprieve from the recent rout.After Turkey and Russia surprised traders last week with more hawkish-than-anticipated policy moves, there's an outside chance the South African Reserve Bank may follow in their footsteps by raising interest rates on Thursday after the rand slumped to a two-year low. Brazil's policy makers decide rates Wednesday following a month in which the real was the worst-performing developing-nation currency after Argentina's peso."The pressure to hike will be particularly strong for Brazil and South Africa, both of which have seen their currencies plunge this year," said Per Hammarlund, chief emerging-market strategist at SEB AB in Stockholm. However, with inflation moderating in Brazil in August while accelerating in South Africa in July, the Brazilian central bank will probably stay on hold at 6.50 percent while South Africa's is likely to hike by 25 basis points to 6.75 percent, he said..Emerging markets got a lift last week as Turkey's central bank delivered a larger-than-anticipated 625 basis-point interest rate hike while Russia's tightened for the first time since 2014. Still, options traders remained the most bearish on the Turkish lira in emerging markets in the coming month after President Recep Tayyip Erdogan restated his opinion that higher rates won't help to slow inflation and warned that his restraint won't last forever.Goldman Sachs Group Inc. said it would rather use the lira's stability to "re-engage" in other high-yielding currencies that suffered from the Turkey contagion, such as the rand, real, Mexican peso and ruble. There will be other challenges ahead for Turkey with the economy slowing rapidly, strategists including New York-based Zach Pandl wrote in a report.The U.S.-China trade conflict will also keep rumbling on. There will be "no real progress" in trade negotiations between Washington and Beijing before the U.S. mid-term elections, said SEB's Hammarlund. Beijing is considering declining the offer of talks led by U.S. Treasury Secretary Steven Mnuchin, the Wall Street Journal reported. President Donald Trump has decided to proceed with tariffs on about $200 billion more of Chinese products despite Mnuchin's attempt to restart talks with Beijing to resolve the trade war, according to people familiar with the matter.South Africa May surpriseAll except one of the economists surveyed by Bloomberg expect South Africa's central bank to keep the interest rate unchanged at 6.50 percent after the economy slipped into a recessionBut there is the off-chance that the central bank may hike by 25 basis points at the meeting in light of recent rand weakness, according to Investec Bank"An interest-rate hike by the SARB would not go against the trend, while the U.S. interest-rate cycle still has further to climb and risk-aversion levels have not subsided to the point of persistent risk-on yet," said Investec chief economist, Annabel BishopThe rand was the worst-performing developing-nation currency in the past month after the Argentine peso and Brazilian realOptions showed the premium on contracts to sell the rand versus the dollar in a month's time over those to buy had its first weekly drop in threeBrazil's Central Bank, Bolsonaro watchBrazil's central bank is expected to hold the key rate at a record-low 6.5 percent. The decision will be the last meeting before the presidential election in October, and follows surprise August deflationOn Monday and Tuesday, two new polls will show the state of Brazil's presidential race. The contest was upended after leading candidate Jair Bolsonaro was stabbed while campaigning on Sept. 6Brazilian stocks gained 1.8 percent on the day of the attack as investors bet on a surge in support for the right-wing candidate, before reversing the rally after a Datafolha poll showed him making only incremental gains. The largest advances were made by left-wing candidates. Bolsonaro underwent a second operation last week, making it unclear when he can return to campaigningHungary's unconventional policyInvestors in Hungary will watch Tuesday's rate meeting, when policy makers will publish updated economic forecasts and announce details of their unconventional policy for the next three months. Deputy Governor Marton Nagy is said to hold a call and meetings with investors in the days following the announcementThe National Bank of Hungary will likely keep rates unchanged and maintain its forward guidance on short-end rates, with policy rate hikes unlikely before 2020, according to Bank of America analyst Mai DoanMonetary policy interest-rate swaps will probably be phased out and there could be some communication tweaks to address forint weakness and inflation risks. But the central bank will likely be careful not to provoke forint appreciation, Doan saidHungarian Prime Minister Viktor Orban is scheduled to open the fall session of parliament with a speech in which he may give details on his policy toward the European Union after lawmakers in the bloc proposed sanctions for eroding democratic values.Argentine recessionArgentina will release second-quarter gross domestic product data on Wednesday that are almost certain to show a steep economic contraction. The economy is besieged on all sides as a drought hammers agricultural production and a currency rout stokes inflation and undermines investment and consumer spendingThe Argentine peso was the worst performer last week, falling 7.2 percent and extending a 53 percent slump this yearAs President Mauricio Macri continues to negotiate fiscal measures after securing an emergency credit line with the International Monetary Fund, GDP figures will provide an early indication of how severe the recession will beThai havenPolicy makers at the Bank of Thailand will be under no pressure to raise interest rates when they meet on WednesdayInflation remains benign, Finance Minister Apisak Tantivorawong said last week. Given the nation's strong buffers and relatively strong currency, the need for Thailand to increase the rate is not as imminent as other emerging markets, BOT Governor Veerathai Santiprabhob said last monthThe baht is emerging Asia's best-performing currency this year.India to help RupeeIndia unveiled measures to prop up Asia's worst-performing currency, including steps to facilitate bond issuance by local companies and possible curbs on importsOverseas borrowing restrictions on Indian manufacturers will be relaxed and the government may ease the cap that limits foreign ownership of individual company bonds, Finance Minister Arun Jaitley said on FridayThe rupee has lost about 11 percent this year even as the central bank raised rates to the highest level in two years.Economic dataTrade figures released by Indonesia on Monday showed the deficit narrowed to $1.02 billion in August from $2.03 billion the previous month but worse than the median estimate of a $674 million shortfall in a Bloomberg survey. Thailand will report trade data on Friday, while Taiwan's export orders are due on ThursdayThe Philippines reported on Monday that overseas workers remittances, the nation's largest source of foreign exchange after exports, rose 5.2 percent from a year earlier in July to $2.4 billion. The Asian nation will unveil its balance of payments on WednesdayMalaysia reports inflation data on WednesdayTurkey to release industrial production, unemployment data on MondayPoland's statistics office presents wages and employment data on Tuesday, followed by industrial output and PPI on Wednesday and retail sales on Friday. The central bank releases its minutes on ThursdayDonald Trump hosts Polish President Andrzej Duda's first official visit to the White House on Tuesday

SA under pressure to raise interest rates – world analysts

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