May 2018
Sentiment towards emerging markets was undermined during May by speculation that US monetary policy is likely to tighten more aggressively than previously anticipated, and by escalating concern over Argentina. Having raised its key interest rate from 27.25% to 30.25% in April, Argentina’s central bank implemented two further increases in May, taking its interest rate to 40% in a bid to support the peso.
- The US imposed tariffs on a range of Chinese imports
- Inflation in India accelerated more rapidly than expected
- Brazil held the Selic rate at 6.5%
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Sentiment towards emerging markets was undermined during May by speculation that US monetary policy is likely to tighten more aggressively than previously anticipated, and by escalating concern over Argentina. Having raised its key interest rate from 27.25% to 30.25% in April, Argentina’s central bank implemented two further increases in May, taking its interest rate to 40% in a bid to support the peso. The country’s Treasury Minister subsequently met with Managing Director of the International Monetary Fund (IMF) Christine Lagarde to discuss the possibility of financial support.
“President Donald Trump suddenly decided to press ahead with a series of controversial tariffs”
China’s industrial output strengthened by more than expected during April, rising at an annualised rate of 7% compared with March’s rate of 6%. However, these figures do not yet reflect recent changes in trade terms: although the US and China trade relationship had appeared to be improving, US President Donald Trump decided to press ahead with a series of controversial tariffs. In response, China said it was both “surprised and unsurprised” by the move, which it described as “obviously contrary to the consensus reached between China and the US in Washington not long ago”, calling on the US to “act in the spirits of the joint statement”.
Elsewhere, the IMF hailed the Chinese government’s reforms, which have helped to shift the focus from “high-speed to high-quality growth”. The IMF also urged the country’s authorities to increase co-operation in order to alleviate trade tensions. Looking ahead, the IMF expects China’s economic growth to lose momentum gradually over the next few years to reach 5.5% by 2023. The Shanghai Composite Index ended the month 0.4% higher.
Policymakers at Brazil’s central bank opted to maintain its key Selic rate at 6.5%, confounding expectations of another cut. Copom officials cited the recent reduction in risk appetite towards emerging economies and a more challenging and volatile global backdrop. The Bovespa Index fell by 10.9% over the month.
India’s annualised rate of consumer price inflation accelerated more rapidly than expected during April, rising from 4.28% in March to reach 4.58%, driven partly by a strong acceleration in the price of oil. The news fuelled expectations that the Reserve Bank of India (RBI) will opt to tighten rates at its next monetary policy meeting. The price of a barrel of Brent crude oil rose above US$80 during May. The CNX Nifty Index ended May largely unchanged.
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