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A tough month for emerging markets

August 2018

Emerging markets generally fell during August, undermined by an increasingly hawkish US central bank, a strengthening US dollar and unease over escalating trade tensions. The Turkish lira plunged against the US dollar and, as the relationship between Turkey and the US continued to deteriorate, President Trump doubled US tariffs on imports of Turkish steel and aluminium.

  • Argentina’s key interest rate rose to 60%
  • Argentina asked the IMF to expedite financial aid
  • India’s economic growth rose to 8.2% YoY

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Emerging markets generally fell during August, undermined by an increasingly hawkish US central bank, a strengthening US dollar, and unease over escalating trade tensions. The Turkish lira plunged against the US dollar and, as the relationship between Turkey and the US continued to deteriorate, President Trump doubled US tariffs on imports of Turkish steel and aluminium to 50% and 20% respectively. Turkey responded by increasing levies on US imports.

“Turkey’s experiences underline the vulnerability of some emerging countries”

Turkey’s experiences underline the vulnerability of some emerging countries to rising debt costs, according to ratings agency Moody’s, which found that the economies that have recently been most hurt by weakening exchange rates, wider risk premia and lower capital inflows also tend to have current account and budget deficits. Moody’s found that Argentina, Russia, Brazil and South Africa have experienced the highest level of currency depreciation against the US dollar so far in 2018.

As the value of the peso plummeted, Argentina’s central bank attempted to stabilise the currency by raising its key interest rate to 60% at the end of August. Argentina’s rate of inflation has risen above 30% and the country is facing an economic crisis. Argentina’s President Macri asked the International Monetary Fund (IMF) to expedite its financial bailout; in response, IMF Managing Director Christine Lagarde reiterated the IMF’s “readiness to assist (Argentina’s) government”.

Policymakers at the Reserve Bank of India increased its key interest rate by 25 basis points to 6.5% during August in a bid to stem capital outflows and curb inflationary pressures. India’s economy posted annualised growth of 8.2% during the three months to June 2018, having expanded by 7.7% in the previous quarter. Growth was underpinned by a strong contribution from manufacturing, utilities, and construction. The CNX Nifty Index rose by 2.9% during August. 

Ratings agency Fitch affirmed Brazil’s credit rating at “BB-” with a “stable” outlook. Whilst citing structural weaknesses, high government indebtedness, a “challenging” economic backdrop and corruption-related problems, Fitch also highlighted the support provided by the country’s economic diversity and well-established civil institutions. Fitch believes Brazil is experiencing a “mild” economic recovery that will be underpinned in the medium term by external demand and the alleviation of some political uncertainties, but there are still some question-marks surrounding the impending Presidential and Congressional elections in October. The Bovespa Index fell by 3.2% over the month. 


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