Important disclosures and certifications are contained from page 23 of this report. www.danskeresearch.com
Investment Research — General Market Conditions
The past year has been very challenging for global emerging markets (EM) and even
though we have seen market sentiment turn a bit more positive in the past couple of
months, it is also clear that the markets remain ‘shaky’.
One of the factors featuring prominently in the EM volatility over the past year is the
return of what we could call regime uncertainty: an increase in political uncertainty and
geopolitical uncertainty across the global EM universe. Some of the issues include the
following: corruption scandals in Turkey, significant labour market unrest in South
Africa, ongoing street protests in Brazil ahead of the football World Cup, violent protests
and demonstrations in Venezuela, the continued civil war in Syria, which now seems to
be spreading to Iraq, Ukrainian-Russian tensions, the military coup in Thailand and so on.
All these conflicts to a smaller or larger extent have had a negative impact on EM
sentiment over the past year, either directly or through the impact of these crises on global
commodity prices. One example is the Ukrainian-Russian conflict, which has clearly
contributed to the significant increase we have seen in global food prices and to some
extent global gas prices.
While these conflicts have obviously had a negative impact on overall EM sentiment, one
could argue that they are mainly a consequence of the global EM crisis rather than a cause
of it. Hence, we think there is a significant correlation between the slowdown in
economic growth in many EM since 2011-12 and the increase in regime uncertainty.
While the EM in general weathered the initial global economic and financial storm in
2008-09 well, in recent years most EM economies have seen a slowdown. In our view,
this has mostly been a result of Chinese monetary tightening, stagnation in global
commodity prices and unwelcomed monetary tightening to curb the sell-off in the EM
currencies as well as the increased regime uncertainty in many countries.
Hence, with economic conditions worsening, there has been an increase in public
disconnect in many EM countries. Furthermore, with public coffers coming under
pressure, democratic as well as non-democratic governments have found it harder to
‘buy’ support from voters and special interests.
Looking ahead, we warn against overemphasising the impact of the increased regime
uncertainty on the global EM markets as we mostly see the increased uncertainty as a
consequence of weaker growth rather than a cause of it. However, with no clear signs of a
major acceleration in EM growth, it seems as if the heightened regime uncertainty is
becoming more permanent in many EM. Therefore, we need to remind ourselves why we
call them EM and remember that by definition, these economies are riskier than
developed markets.
17 June 2014
Chief Analyst Lars Christensen +45 45 12 85 30 [email protected]
Emerging Markets Briefer
Return of ‘regime uncertainty’
Contents
Poland ................................................ 2
Czech Republic ............................. 3
Hungary............................................. 4
Romania ............................................ 5
Baltics ................................................ 6
Russia ................................................ 7
Ukraine .............................................. 8
Kazakhstan ..................................... 9
Turkey ............................................ 10
South Africa ............................... 11
Brazil ............................................... 12
Mexico............................................ 13
China ............................................... 14
Indonesia ...................................... 15
India ................................................. 16
FX forecasts ............................... 17
Forecasts vs forwards ........ 20
Monetary policy calendar .. 21
2 | 17 June 2014 www.danskeresearch.com
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Emerging Markets Briefer
Poland
Macro outlook
The latest GDP data shows that growth seems to be picking up faster than we
previously expected. We now expect real GDP growth of 3.6% y/y in 2014 and 3.6%
in 2015. On the other hand, the ongoing Ukrainian-Russian conflict could potentially
harm Polish growth going forward even though we think the effect has so far been
very limited.
We still expect private consumption and investments to be the main drag on growth
this year. Given the expected weakness in private demand, external balances should
improve somewhat (and have been doing so recently).
Monetary policy outlook
While Polish growth seems to be picking up, inflation remains very subdued and there
is a risk of outright deflation in the coming months in Poland. The continued very low
inflation could push the Polish central bank (NBP) in a slightly more dovish direction
and rate cuts cannot be ruled out. The ECB’s recent easing measures combined with a
stronger zloty could also add to market speculation about a possible rate cut.
However, for now, the NBP keeps signalling that rates will be on hold throughout
2014.
FX outlook
The zloty has been doing surprisingly well recently. The recent strengthening has,
among other things, been driven by the ECB’s more dovish stance and the drop in
eurozone money market rates has helped make the zloty more attractive from a carry
perspective. Looking forward, we believe that the strengthening could continue on a
three-six month horizon – primarily driven by attractive carry on the zloty.
No real inflation pressure Growth is picking up
Source: Macrobond Source: Macrobond
PLN
Credit rating:
S&P: A- (stable)
Currency regime:
Free float (freely convertible)
Inflation target:
2.5% +/-1pp
Macro forecasts
Source: Macrobond, Danske Bank Markets
Interest rate forecast
Source: Danske Bank Markets
FX forecasts
Source: Macrobond, Danske Bank Markets
2013 2014 2015 2016
GDP (% y/y) 1.5 3.6 3.6 4.0
GDP deflator (% y/y) 1.0 1.6 1.8 1.9
CPI (% y/y) 1.0 1.0 1.5 2.0
Private consumption (% y/y) 0.8 3.1 3.5 3.9
Fixed investments (% y/y) -0.1 3.0 3.5 3.9
Unemployment (%) 13.4 12.6 12.4 12.1
Current account (% of GDP) -1.6 -1.6 -1.0 -1.2
Policy rate
Next meeting
Next change - Unchanged 2014
End-2014
National Bank of Poland (NBP)2.50
02 July 2014
2.50
Danske Forward
16-Jun 4.14
+3M 4.05 4.16
+6M 4.10 4.19
+12M 4.15 4.23
Danske Forward
16-Jun 3.05
+3M 3.05 3.07
+6M 3.15 3.08
+12M 3.29 3.11
EUR/PLN
USD/PLN
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Emerging Markets Briefer
Czech Republic
Macro outlook
Czech Q1 GDP was revised up to 2.5% y/y GDP growth. That was slightly higher
than we expected but below the Czech central bank’s (CNB) forecast (0.2% y/y
lower). Growth was driven by investments but also domestic demand contributed
more than expected. We expect the Czech economy to continue its recovery with
average 2014 GDP growth of 2.4% y/y and 3.1% y/y in 2015 and 3.2% y/y in 2016.
The CNB’s current forecast is for 2014 GDP growth of 2.6% and 3.3% in 2015.
Inflation remains very low. Even though it increased in April to 0.4% y/y, up from
May’s 0.1% y/y, it came in below the CNB’s own forecast. We expect it to slow
down again in June before picking up a bit again. However, we expect it to rise up to
target slowly and to return to the CNB’s target of 2% somewhat later than the CNB
assumes.
Latest economic indicators confirm the ongoing economic revival. PMI in May
increased to 57.3 up from 56.5 and is one of the highest in CEE region. Industrial
production in April was 7.7% y/y and also retail sales in April were strong at 6.0%
y/y.
Monetary policy outlook
The CNB remains committed to using the exchange rate as a non-standard monetary
policy and to keeping the EUR/CZK floor at 27. Despite the continued economic
recovery, inflation continues to hover close to zero and is increasing less than
expected by the CNB. This means that the probability of a later exit from the
exchange rate commitment is increasing. We expect the CNB to keep the koruna cap
for longer – beyond Q1 15 as assumed by the CNB. Some CNB board members have
already acknowledged the possibility of a later exit.
FX outlook
The Czech koruna remains stable and is hovering around EUR/CZK 27.5. We expect
it to stay basically flat at current levels going forward and expect the CNB to maintain
the CZK cap beyond Q1 15. We forecast EUR/CZK at 27.40, 27.40 and 27.30 on
three-, six- and 12-month horizons.
CZK
Credit rating:
S&P: AA- (stable)
Currency regime:
Free float (freely convertible)
Inflation target:
2% +/-1pp
Macro forecasts
Source: Macrobond, Danske Bank Markets
Interest rate forecast
Source: Danske Bank Markets
FX forecasts
Source: Macrobond, Danske Bank Markets
2013 2014 2015 2016
GDP (% y/y) -0.9 2.4 3.1 3.2
GDP deflator (% y/y) 1.9 1.9 2.0 2.0
CPI (% y/y) 1.4 1.4 0.9 1.8
Private consumption (% y/y) 0.1 1.9 3.0 3.2
Fixed investments (% y/y) -3.6 5.4 3.0 3.2
Unemployment (%) 8.2 8.4 8.2 8.1
Current account (% of GDP) -2.4 -2.4 -1.7 -1.2
Policy rate
Next meeting
Next change - Unchanged 2014
End-2014
Czech National Bank (CNB)0.05
26 Jun 2014
0.05
Danske Forward
16-Jun 27.44
+3M 27.40 27.40
+6M 27.40 27.38
+12M 27.30 27.33
Danske Forward
16-Jun 20.22
+3M 20.60 20.18
+6M 21.08 20.15
+12M 21.67 20.09
EUR/CZK
USD/CZK
4 | 17 June 2014 www.danskeresearch.com
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Emerging Markets Briefer
Hungary
Macro outlook
Growth is clearly picking up in Hungary and after years of stagnation, it is becoming
one of the fastest growth economies in central and eastern Europe. However, both
structural problems and weak domestic demand are continuing to weigh on economic
activity.
We now expect a higher pick-up in growth to 3.5% y/y in 2014 – up from 1.2% y/y in
2013. We expect growth to remain at 3.5% y/y in 2015.
Hungary has seen a substantial improvement in external balances. The improvement
in external balances partly reflects the continued improvement in Hungarian public
finances but also still weak domestic demand. That said, as growth is picking up, we
expect the current account surplus to shrink moderately in the coming years.
Monetary policy outlook
The Hungarian central bank (MNB) has initiated a policy of baby-step rate cuts.
Further monetary easing is justified as there is actually now deflation in Hungary
(despite higher growth) and there is certainly a risk of further deflation in coming
months. However, rates have now come down to the point where the MNB might start
to worry that the stability of the HUF is jeopardised. Furthermore, higher GDP growth
might also turn the MNB slightly less dovish.
FX outlook
We continue to believe that Hungary’s fairly strong external position is likely to be
supportive for the HUF in the medium term, as will the increasingly stronger recovery
in growth. As a consequence, the HUF could even strengthen moderately against the
EUR on a 12-month horizon, while the short-term outlook is likely to be dependent on
the general EM outlook as well as developments in the Russian-Ukrainian conflict. The biggest risks to the HUF remain the political uncertainty and the Hungarian
government once again taking a ‘misstep’ in economic policy.
Deflation Growth is picking up
Source: Macrobond Source: Macrobond
HUF
Credit rating:
S&P: BB (stable)
Currency regime:
Free float (freely convertible)
Inflation target:
3% (medium term)
Macro forecasts
Source: Macrobond, Danske Bank Markets
Macro forecasts
Source: Macrobond, Danske Bank Markets
Interest rate forecast
Source: Danske Bank Markets
FX forecasts
Source: Macrobond, Danske Bank Markets
2013 2014 2015 2016
GDP (% y/y) 1.2 2.9 2.9 2.5
GDP deflator (% y/y) 3.0 3.1 3.1 3.0
CPI (% y/y) 1.7 1.2 3.2 3.1
Private consumption (% y/y) 0.2 2.7 2.9 2.5
Fixed investments (% y/y) 5.9 3.2 2.7 2.5
Unemployment (%) 8.9 8.0 7.6 7.4
Current account (% of GDP) 2.9 3.2 3.2 3.0
2013 2014 2015 2016
GDP (% y/y) 1.2 3.5 3.5 2.8
GDP deflator (% y/y) 3.0 3.1 3.3 3.1
CPI (% y/y) 1.7 1.7 1.2 3.2
Private consumption (% y/y) 0.2 2.4 3.6 2.9
Fixed investments (% y/y) 5.9 10.0 4.4 3.0
Unemployment (%) 8.9 7.3 6.6 6.3
Current account (% of GDP) 2.9 2.5 2.0 2.0
Policy rate
Next meeting
Next change - 10 bp June, 2014
End-2014
Hungarian Central Bank (MNB)2.40
24 Jun 2014
2.00
Danske Forward
16-Jun 307.8
+3M 305.0 308.4
+6M 305.0 309.2
+12M 305.0 311.3
Danske Forward
16-Jun 226.79
+3M 229.32 227.19
+6M 234.62 227.67
+12M 242.06 228.83
EUR/HUF
USD/HUF
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Emerging Markets Briefer
Romania
Macro outlook
The Romanian economy performed relatively well in 2013 with GDP growth of 3.3%
y/y. Q1 2014 GDP growth was decent, 3.8% y/y. We are fairly positive on the outlook
for the economy. As the country has improved its external imbalances, making it more
resilient to external shocks, it provides some scope for pro-growth policies going
forward. Furthermore, as the eurozone continues to recover, it should further support
export growth. We expect the Romanian economy to expand by 3.8% y/y in 2014, 3.7%
y/y in 2015 and 3.8% in 2016.
Inflation has dropped considerably over the past year and still continues to inch down. In
May, it surprised well on the downside when it dropped below 1%, precisely to 0.9% y/y,
down from April’s 1.2% y/y. Hence, headline inflation continues to be well below the
official inflation target of 2.5%. In 2014, we expect inflation to average around 2.1% y/y
and around 3% in 2015.
Economic indicators continue to point to an economic recovery. Retail sales in April
remained decent, expanding 5.1% y/y. Industrial production in April was also fairly good,
growing by 5.9% y/y.
The current account deficit has narrowed considerably over the past two years, where
especially the current account situation improved strongly in 2013 with the deficit
narrowing to 1.06% of GDP. Looking ahead, we expect the current account deficit to
remain sustainable. We expect a deficit of 1.4% of GDP in 2014 and 1.6% of GDP in
2015.
Monetary policy outlook
The Romanian central bank (NBR) initiated monetary policy easing in mid-2013 amid
the economic slowdown and falling inflation. Since mid-July 2013, it has eased monetary
policy by cutting its key policy rate by 175bp to 3.50%. At the May meeting, the NBR
stayed on hold. Given that inflation keeps falling, we cannot rule out that the NBR could
ease monetary policy further and cut interest rates further.
FX outlook
Due to Romania’s improved external imbalances, the leu has become more resilient to
external shocks. Along with improved risk sentiment and a continued domestic economic
recovery, this has been supportive for the RON. The currency has appreciated recently
and is already trading very close to its fair value. In that respect, we do not expect it to
appreciate much further going forward and we expect the EUR/RON to trade around
current levels of 4.40 on three-, six- and 12-month horizons.
Macro forecasts
Source: Macrobond, Danske Bank Markets
RON
Credit rating:
S&P: BBB- (stable)
Currency regime:
Free float (freely convertible)
Inflation target:
2014: 2.5% +/-1pp
Interest rate forecast
Source: Danske Bank Markets
FX forecasts
Source: Macrobond, Danske Bank Markets
2013 2014 2015 2016
GDP (% y/y) 3.3 3.8 3.7 3.8
GDP deflator (% y/y) 3.5 2.8 2.8 2.8
CPI (% y/y) 4.0 2.1 2.9 2.9
Private consumption (% y/y) 1.2 2.5 3.3 3.7
Fixed investments (% y/y) -3.9 -2.6 2.6 3.6
Unemployment (%) 7.4 7.2 7.4 7.5
Current account (% of GDP) -1.1 -1.4 -1.6 -2.3
Policy rate
Next meeting
Next change - H2, 2014
End-2014
01 Jul 2014
3.50
National Bank of Romania (NBR)
3.25
Danske Forward
16-Jun 4.40
+3M 4.40 4.40
+6M 4.40 4.42
+12M 4.40 4.45
Danske Forward
16-Jun 3.24
+3M 3.31 3.24
+6M 3.38 3.25
+12M 3.49 3.27
EUR/RON
USD/RON
6 | 17 June 2014 www.danskeresearch.com
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Emerging Markets Briefer
Baltics
Overall comment: the escalation in geopolitical tension with regard to the situation in
Ukraine is likely to have a significant negative impact on Baltic growth. Furthermore,
a further escalation in geopolitical tension could hurt the general investor perception
of the Baltic States.
Estonian macro outlook
The Estonian economy slowed significantly in 2013 and underperformed the other
two Baltic economies in terms of growth performance. In particular, the weak growth
of Estonia’s trading partners, such as Finland, has been weighing on growth. We
expect some pick-up in Estonia but, given the overall lacklustre European growth, we
expect this to be slow. We expect Estonian GDP growth to pick up moderately from
2013, to 1.5% y/y in 2014 and further to 1.8% y/y in 2015.
Latvian macro outlook
The recovery in the Latvian economy continues with GDP growth around 3-4% y/y
but the Ukraine-Russia conflict is clearly a downside risk to Latvian growth.
Latvia joined the euro area on 1 January. We do not expect a major short-term impact
as Latvia has effectively been ‘shadowing’ ECB monetary policy for years as a
consequence of the peg to the euro. However, it is also clear that the performance of
the Latvian economy is now linked completely to that of the euro area.
Inflation came down significantly in 2013 and we are likely to see outright deflation in
Latvia during some of 2014. We expect inflation to pick up only slowly in coming years.
Lithuanian macro outlook
Lithuania has not joined the euro area yet but looks set to fulfil the Maastricht criteria
soon. The economy continues to recover and growth remains among the fastest in
Europe. However, the output gap has not yet been fully closed following the sharp fall
in economic activity in 2008-09. We still expect Lithuanian growth to pick up. The
biggest near-term risk to growth is the expected sharp slowdown in Russia, as it is one
of Lithuania’s main trading partners.
As in Latvia, inflation in Lithuania fell significantly in 2013. Given the continued
decline in global commodity prices and continued slack in the Lithuanian economy,
we expect inflation to remain quite subdued in 2014 and 2015.
Baltics macro forecast
Source: Macrobond, Danske Bank Markets
Year GDP (% y/y)
GDP deflator (% y/y) CPI (% y/y)
Private consumption
(% y/y)Fixed investments
(% y/y)Unemployment (%)
Current account (%
of GDP)
2013 0.8 5.0 2.8 4.2 1.1 8.8 -2.1
2014 1.5 1.6 0.7 2.2 6.3 8.9 -2.0
2015 1.8 1.7 1.7 1.5 3.4 9.1 -2.0
2016 2.4 1.8 1.8 2.2 3.3 9.1 -2.0
2013 4.8 1.7 0.0 5.4 -4.3 11.6 -1.0
2014 3.7 2.1 0.4 2.3 5.7 11.4 -1.5
2015 2.6 1.9 1.7 2.8 3.7 11.3 -2.0
2016 2.8 1.9 1.9 2.7 2.8 11.1 -2.0
2013 2.5 1.6 1.1 3.2 4.8 10.8 0.1
2014 2.4 1.8 0.7 2.4 2.3 10.8 -0.5
2015 2.7 1.9 1.9 2.6 2.6 10.6 -0.7
2016 2.9 1.9 1.9 2.8 2.8 10.4 -0.7
Lithuania
Latvia
Estonia
EEK
Credit rating:
S&P: AA- (stable)
Currency:
EUR since 1 January 2011
LVL
Credit rating:
S&P: A- (stable)
Currency:
EUR since 1 January 2014
LTL
Credit rating:
S&P: A- (stable)
Currency regime:
Currency board, ERM2 member
(freely convertible)
Inflation target:
None, due to fixed exchange rate
7 | 17 June 2014 www.danskeresearch.com
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Emerging Markets Briefer
Russia
Macro outlook
Economic growth in Russia is slowing further, posting 0.9% y/y growth in Q1 14
compared with 2.0% y/y in Q4 13. Our 2014 GDP forecast stays at -0.3% y/y due to a
surge in geopolitical risks, which have introduced both supply and demand side
shocks: extreme acceleration in capital outflows in Q1 14 and continuing monetary
tightening.
Fixed investment growth continues to be negative: it decreased 2.7% y/y in April,
falling for the fourth consecutive month. Construction fell 2.8% y/y in April, staying
negative for the ninth month in a row despite strong residential construction data:
15.8% y/y growth in April 2014 and a 31% expansion in Q1 14. As supply side
shocks and tightening monetary policy are set to have a further negative impact on
fixed investments in 2014, we see some upside risks in 2015-16 arising from giant
state projects such as the gas line deal with China.
Unemployment fell to 5.3% in April from 5.4% in March. Yet, private consumption
expansion is slowing down on high interest rates and weakened rouble: retail sales
expanded 2.6% y/y in April from a revised 4% y/y in the previous month.
Russia’s credit rating was downgraded by S&P to BBB- with a negative outlook on
25 April 2014 as geopolitical and economic risks continue to weigh.
FX and monetary policy outlook
The Russian central bank, Bank Rossii, surprisingly hiked its main rates by 50bp on
25 April to curb accelerating inflation and support the RUB. But it kept rates
unchanged on 16 June saying that Russia may hike if current inflation risks are
realized. We believe that a total 50bp rate cut is still possible in H2 14 if CPI falls
close to 6% y/y. Our CPI forecast for December 2014 is 6.2% y/y.
Consumer prices accelerated further to 7.6% y/y in May, staying far from Bank
Rossii’s 2014 target of 5%. Yet, if we see more escalation in the situation in Ukraine
and steep RUB devaluation, the consumer price index could stay far above 6% y/y
even in H2 14. The main inflation risk comes from the soaring prices of imported
goods, especially in Russia’s large cities.
Risk factors
The main risks continue to be geopolitical at present, although after the presidential
elections in Ukraine, the situation seemed to de-escalate. However, we have been
constantly reiterating that geopolitical risks are underestimated by the markets
The oil price risk is currently lower than it has been. However, Bank Rossii’s
monetary tightening is another large risk which could easily send the country into
recession already in 2014. A rapid devaluation of RUB could prompt more radical
measures such as capital control, although we see this as less probable under the new
governor of Bank Rossii than under the previous team.
RUB
Credit rating:
S&P: BBB- (negative)
Currency regime:
Managed peg versus dual currency
basket – 45% EUR and 55% USD
(freely convertible)
Inflation target:
5% in 2014, 4.5% in 2015
(December-on-December basis)
Macro forecasts
Source: Macrobond, Danske Bank Markets
Interest rate forecast
Source: Danske Bank Markets
FX forecasts
Source: Macrobond, Danske Bank Markets
2013 2014 2015 2016
GDP (% y/y) 1.3 -0.3 -1.8 0.5
GDP deflator (% y/y) 5.9 3.0 2.7 3.2
CPI (% y/y) 6.8 6.2 4.8 4.0
Private consumption (% y/y) 4.0 1.2 -2.2 2.2
Fixed investments (% y/y) -2.0 -3.7 -3.0 0.3
Unemployment (%) 5.6 5.9 7.1 6.9
Current account (% of GDP) 2.0 1.0 0.1 0.1
Policy rate
Next meeting
Next change - 50 bp Q4 2014
End-2014
25 Jul 2014
7.50
Bank of Russia (CBR)
7.00
Danske Forward
16-Jun 47.00
+3M 48.94 47.93
+6M 49.80 48.92
+12M 51.00 50.88
Danske Forward
16-Jun 34.63
+3M 36.80 35.30
+6M 38.31 36.01
+12M 40.48 37.40
USD/RUB
EUR/RUB
8 | 17 June 2014 www.danskeresearch.com
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Emerging Markets Briefer
Ukraine
Macro outlook
The escalation of the political situation in Ukraine is weighing dramatically on the
Ukrainian economy. The economy grew 3.3% y/y in Q4 13, but fell 1.1% y/y in
Q1 14, according to final data. The economy has received its first external support as
a two-year stand-by agreement with the IMF has been made. However, military
operations by the Ukrainian army in the country’s Eastern parts to quash action by
federalisation and independence movements are putting the future of the programme
at risk.
The decline in industrial production continued in April posting a 6% y/y decline from
6.8% y/y fall in March. Mining and manufacturing shrank 7% y/y in April. As the
major unrest and military operations are concentrated on Ukraine’s most
industrialised regions, industrial production will be hit heavily in 2014. As Russian
energy giant Gazprom and Ukraine failed to agree on natural gas price and almost
USD2bn has not been received for previous gas supplies, the company said it is
moving to prepayment for gas. This would hit further industrial production in
Ukraine.
Retail sales growth cooled to 5.6% y/y in January-April 2014 from 7.7% y/y in
January-March 2014. Gas price increases are set to significantly reduce consumers’
purchasing power.
FX and monetary policy outlook
Inflation continues to accelerate on weak UAH reaching 10.9% y/y in May versus
6.9% y/y in April.
Ukraine’s foreign reserves grew by USD3.7bn as country gets the first tranche from
IMF. We expect USD/UAH to hit 15.00 this year as there are insufficient FX reserves
to provide enough support. However, IMF financing may mitigate the path of
devaluation.
Risk factors
Escalation of the geopolitical situation and difficulties with debt servicing are the
major economic risks in the current environment.
Private consumption set to dive in
2014
Industrial and agricultural production
Source: Macrobond, Danske Bank Markets Source: Macrobond, Danske Bank Markets
UAH
Credit rating:
S&P: CCC (negative)
Currency regime:
Managed peg versus USD
FX forecasts
Source: Macrobond, Danske Bank Markets
Danske Forward
16-Jun 15.95
+3M 19.95 16.13
+6M 19.50 16.14
+12M 18.90 16.16
Danske Forward
16-Jun 11.75
+3M 15.00 11.88
+6M 15.00 11.88
+12M 15.00 11.88
USD/UAH
EUR/UAH
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Emerging Markets Briefer
Kazakhstan
Macro outlook
Kazakh economic growth slowed unexpectedly to 3.8% y/y in Q1 14 versus 6% y/y in
Q4 13, according to preliminary data. Agriculture, production of services and
construction were still growing, but industrial production shrank 0.3% y/y. Global
uncertainty among EM markets is also weighing on the Kazakh economy.
Kazakhstan’s credit rating outlook was lowered to negative from stable by rating
agency Standard & Poor’s on 13 June as the outlook for economic growth is
worsening together with effectiveness of monetary policy.
Real wage expansion jumped to 4.3% y/y in April versus 1% y/y in March. However,
the growth trend is downwards due to devaluated KZT. We expect CPI to increase to
8% y/y in 2014. Inflation accelerated further in May to 6.9% y/y versus 6.5% y/y in
April.
Low unemployment prevailed throughout 2013 and early 2014, remaining at 5.1% in
April.
FX and monetary policy outlook
On 11 February 2014, the National Bank of Kazakhstan (NBK) announced that it
would no longer support KZT at the previous level of around 155 for one USD. As a
result, KZT lost 19% against USD, hitting 186 in just one day. To improve liquidity in
the banking sector and accelerate credit growth, NBK is opening a USD10bn swap
line starting from 1 July 2014. The US dollars will be swapped into KZT at an annual
3% rate. According to NBK, another measure to boost credit growth will be
implemented from October 2015: 30% of lenders’ capital will be allowed to go into
derivatives. The rest must be invested into the economy. We see these actions as
positive for fixed investments and steady economic growth in the long run.
NBK reserves decline a bit from USD28.4bn, reaching USD27.6bn in May. On the
other hand, the national oil fund grew to new highs of USD75.8bn as oil revenues
remain strong.
Risk factors
Kazakhstan remains dependent on its resource sector and oil exports. Accelerating
inflation and weak global demand for commodities could cool Kazakh economic
growth further.
Kazakhstan and Russia are big trade partners. A slowdown in the Russian economy
would weigh on Kazakh exports, KZT and the economy.
KZT
Credit rating:
S&P: BBB+ (negative)
Currency regime:
Corridor versus USD
FX forecasts
Source: Macrobond, Danske Bank Markets
GDP and inflation Industrial production growth
Source: Macrobond, Danske Bank Markets Source: Macrobond, Danske Bank Markets
Danske Forward
16-Jun 249.08
+3M 252.70 249.10
+6M 249.60 249.24
+12M 245.70 249.61
Danske Forward
16-Jun 183.52
+3M 190.00 183.49
+6M 192.00 183.49
+12M 195.00 183.49
USD/KZT
EUR/KZT
10 | 17 June 2014 www.danskeresearch.com
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Emerging Markets Briefer
Turkey
Macro outlook
The Turkish economy has been showing quite clear signs of slowing over the past
couple of years due to increased political risk, significant volatility and sharp
monetary tightening. That said, we are now beginning to see some stabilisation in
Turkish growth. Hence, we expect 2.7% y/y real GDP growth in 2014 and 2.9% y/y in
2015.
The continued high inflation (8.4% y/y in 2014) and the large current account deficit
continue to be a problem from a fundamental perspective.
Monetary policy outlook
Turkish inflation expectations have risen sharply on the back of the significant sell-off
in the lira and this was undoubtedly, in our view, one of the main drivers behind the
central bank of Turkey’s (TCMB) emergency rate hike at the end of January. Recently
higher food prices have pushed Turkish inflation up further. That said, inflation has
probably peaked and recently the TCMB has changed course and initiated a rate
cutting cycle – cutting its key policy rate by 50bp at the latest monetary policy
meeting. The TCMB is likely to remain under political pressure to cut rates even more
despite the elevated level of inflation.
FX outlook
Continued fairly high inflation and a large current account deficit are likely to
continue to weigh on the lira over the longer term. However, these imbalances are to a
large extent already reflected in the lira and the lira continues to trade at what we
consider to be fairly ‘cheap’ levels from a fundamental perspective. Furthermore, high
Turkish interest rates are likely to provide some support for the lira. Overall, we see a
gradual depreciation of the lira, but we are slightly less negative than markets in
general.
TRY
Credit rating:
S&P: BB+ (negative)
Currency regime:
Free-float (freely convertible)
Inflation target:
5.0% year-end 2014
Interest rate forecasts
Source: Danske Bank Markets
Macro forecasts
Source: Macrobond, Danske Bank Markets
FX forecasts
Source: Macrobond, Danske Bank Markets
GDP has picked up Current account deficit remains wide
Source: Macrobond Source: Macrobond
Policy rate
Next meeting
Next change -50bp H1, 2014
End-2014
C.B. of the Republic of Turkey (TCMB)9.50
24 Jun 2014
8.00
2013 2014 2015 2016
GDP (% y/y) 4.1 2.7 2.9 3.4
GDP deflator (% y/y) 5.9 5.5 5.6 5.7
CPI (% y/y) 7.7 8.4 5.7 5.9
Private consumption (% y/y) 4.6 2.1 2.6 3.2
Fixed investments (% y/y) 4.5 3.1 2.7 3.2
Unemployment (%) 9.4 9.4 9.7 9.9
Current account (% of GDP) -7.8 -6.0 -5.7 -6.0
Danske Forward
16-Jun 2.91
+3M 2.82 2.96
+6M 2.80 3.02
+12M 2.77 3.14
Danske Forward
16-Jun 2.14
+3M 2.12 2.18
+6M 2.15 2.23
+12M 2.20 2.31
USD/TRY
EUR/TRY
11 | 17 June 2014 www.danskeresearch.com
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Emerging Markets Briefer
South Africa
Macro outlook
The South African economy has been hard hit by the prolonged strikes in the platinum
sector. This was reflected in very weak Q1 GDP, which showed growth of 1.6% y/y
(down from 2.0% y/y in Q4 13) but a contraction of 0.6% q/q from 3.8% growth in
Q4 13. Given such a weak reading and continued strikes, we have revised down our
GDP forecast to 1.9% y/y for this year and to 2.3% y/y in 2015. The South African
central bank (SARB) revised its GDP forecast for this year significantly down to 2.1%
in (versus 2.6% previously). In 2015, the SARB expects GDP growth of 3.1%.
Inflation in April rose further to 6.1%, breaking the upper end of the official central
bank’s inflation target range of 3-6%. Looking ahead, we expect inflation to accelerate
further in coming months and now expect headline it to average 6.5% in 2015 and 6.8%
y/y in 2016. The SARB forecasts average inflation of 6.3% in 2014 and 5.8% in 2015.
The current account deficit surprised positively in Q4 13, narrowing to a deficit of
5.1% of GDP, which was better than expected, while the Q3 13 deficit was revised to
a deficit of 6.4% of GDP from 6.8%. We do not expect the current account situation
to improve in coming years and expect a deficit of around 6.5% of GDP in 2014.
In Q4 13, unemployment unexpectedly moderated more than expected, falling to
24.1% from a revised figure of 24.5% in Q3 13. Looking ahead, we do not expect any
major improvement in the labour market as the economy remains weak.
Monetary policy outlook
The rate decision in May was a big shift in a more dovish direction. This was on the
back of significant deterioration in the growth outlook. The central bank is facing
conflicting policy choices: weakening economic activity but accelerating inflation.
Recent comments from SARB governor Gill Marcus still indicate that the next move
will be up. The outlook for monetary policy remains unclear but currently the growth
concerns outweigh inflation concerns. We therefore expect the SARB to stay on hold
at the next MPC meeting in July.
FX outlook
Our outlook for the rand has changed quite markedly. While the rand was boosted by
positive risk sentiment in May and even though the fairly positive sentiment towards
emerging markets still remains more or less intact, the rand recently came under some
pressure. This is on the back of persistent structural problems, which hit the economy
hard and which are no longer being ignored by investors. Structural problems,
consequently deteriorating the economic prospects and large external imbalances
mean that we turned negative on all forecast horizons. A credit rating downgrade is a
clear risk.
ZAR
Credit rating:
S&P: BBB (stable)
Currency regime:
Free float (Freely convertible)
Inflation target:
3-6%
Interest rate forecast
Source: Danske Bank Markets
FX forecasts
Source: Macrobond, Danske Bank Markets
Macro forecasts
Source: Danske Bank Markets
Policy rate
Next meeting
Next change +25bp H2, 2014
End-2014
South African Reserve Bank (SARB)5.50
17 Jul 2014
6.00
Danske Forward
16-Jun 14.58
+3M 14.90 14.76
+6M 14.69 14.99
+12M 14.62 15.52
Danske Forward
16-Jun 10.74
+3M 11.20 10.87
+6M 11.30 11.04
+12M 11.60 11.41
USD/ZAR
EUR/ZAR
2013 2014 2015 2016
GDP (% y/y) 1.9 1.9 2.3 2.6
GDP deflator (% y/y) 5.8 6.4 6.7 6.7
CPI (% y/y) 5.7 5.7 6.5 6.8
Private consumption (% y/y) 2.6 1.4 1.8 2.3
Fixed investments (% y/y) 4.8 2.6 1.9 2.3
Unemployment (%) 24.1 25.4 25.7 25.8
Current account (% of GDP) -6.1 -6.1 -6.5 -6.5
12 | 17 June 2014 www.danskeresearch.com
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Emerging Markets Briefer
Brazil Macro outlook
The Brazilian economy remained weak. Q1 14 GDP expanded by 1.9% y/y, down
from the revised 2.2% y/y in Q4 13. We expect the Brazilian economy to remain
weak and to operate well below its potential over the next three years. We expect
GDP growth for 2014 to average 2.0%, 2.6% in 2015 and 2.7% in 2016.
Manufacturing PMI continues to disappoint. In May, it fell further below the critical
50 to 48.8 from 49.3 in April. Industrial production remains well in the red, falling by
5.8% y/y in April, down from -0.7% y/y in March. Retail sales remain volatile and in
April came out at 6.7% y/y, up from -1.1% y/y in March.
The situation in the labour market continues to improve with unemployment in April
falling further down to 4.9% from 5.0% in March. Unemployment remains well
anchored.
Inflation in May inched further up to 6.37% y/y from 6.28% y/y in April. Hence, it is
getting closer to the upper end of the tolerance band of the official inflation target of
4.5% ,+/-2 percentage points. We expect inflation to hover around 6.2% on average in
2014 and around 6.5% y/y in 2015.
Monetary policy outlook
The Brazilian central bank (BCB) continued monetary tightening and at its monetary
policy committee (Copom) meeting at the start of April, it raised the Selic rate by
another 25bp to 11.0%. At May’s meeting, the central bank stayed on hold,
maintaining the key policy rate at 11%. We could still see some additional tightening
going forward.
FX outlook and risk factors
Amid the return of positive sentiment on emerging markets, the BRL has rebounded
since the EM turmoil at the beginning of this year. It has gained quite a bit and is now
more or less at its fair value. Despite the high carry, which is supportive for the BRL,
as long as the economy remains as weak as now and the outlook for commodities and
the Chinese economy in that respect is so uncertain, we cannot see more potential for
further BLR strengthening for now. We therefore expect the BRL to remain around
2.25 against the USD in all forecast horizons.
BRL
Credit rating:
S&P: BBB- (stable)
Currency regime:
Free float (non-convertible)
Inflation target:
4.5% +/- 2 percentage points
Macro forecasts
Source: Danske Bank Markets
Interest rate forecasts
Source: Danske Bank Markets
FX forecasts
Source: Macrobond, Danske Bank Markets
2013 2014 2015 2016
GDP (% y/y) 2.3 2.0 2.6 2.7
GDP deflator (% y/y) 7.7 6.4 6.7 6.7
CPI (% y/y) 6.2 6.2 6.5 6.8
Private consumption (% y/y) 2.3 2.0 2.6 2.9
Fixed investments (% y/y) 6.2 -3.1 1.8 2.9
Unemployment (%) 5.1 4.8 4.9 4.9
Current account (% of GDP) -3.4 -3.4 -3.2 -3.2
Policy rate
Next meeting
Next change + 25 bp H2, 2014
End-2014
16 Jul 2014
11.25
Central Bank of Brazil (BCB)11.00
Danske Forward
16-Jun 3.03
+3M 2.99 3.11
+6M 2.93 3.19
+12M 2.90 3.34
Danske Forward
16-Jun 2.24
+3M 2.25 2.29
+6M 2.25 2.35
+12M 2.30 2.45
USD/BRL
EUR/BRL
13 | 17 June 2014 www.danskeresearch.com
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Emerging Markets Briefer
Mexico Macro outlook
Q1 14 GDP came out slightly lower than expected with GDP expanding by 1.8% y/y,
up from 0.7% y/y in Q4 13. We expect the Mexican economy to recover this year;
however, the recovery is likely to be milder than we previously expected. We expect
the economy to expand 2.9% y/y in 2014, 4.0% y/y in 2015 and 4.0% y/y in 2016.
Manufacturing PMI in May remained above the critical at 51.9, slightly up from 51.8
in April. Retail sales still remain volatile and weak, despite coming out in positive,
growing by 1.7% y/y in March up from -1.7% y/y in February. Unemployment
remains fairly contained, just below 5%.
The Mexican government, led by President Peña Nieto, approved a bill to end the
75-year state monopoly on Mexican oil production. The legislation is credit positive
and positive for the Mexican economic outlook, in our view. In early February,
Moody’s upgraded Mexico’s foreign currency long-term rating from Baa1 to A3.
Monetary policy outlook
Consumer prices in May stayed almost unchanged at 3.51% y/y, up from 3.50% y/y in
April. Hence, inflation remains within the inflation target range of 3.0% +/-1pp but
very close to the upper end of the tolerance band. We expect it to remain elevated and
expect average inflation of 3.8% y/y in 2014 and 4.5% y/y in 2015.
The Mexican central bank, Banco de Mexico, surprised the markets when it
unexpectedly slashed its key policy rate by 50bp to 3.00% at its most recent monetary
policy setting meeting in June. Looking ahead, we do not expect the central bank to
deliver further easing as inflation remains close to the upper end of the tolerance
band. We expect Banco de Mexico to stay on hold this year.
FX outlook
The MXN has lost some of its momentum despite supportive risk sentiment. It is
mostly due to the recent rate cut by the Mexican central bank as economic activity has
been disappointing and the recovery weaker than expected. Our EMEA FX Scorecard
signals that we could see more weakness in the MXN. The global score in particular is
currently negative, while the carry supports the MXN somewhat less.
Growth remains weak Inflation remains within target range
Source: Macrobond Source: Macrobond
MXN
Credit rating:
S&P: BBB (positive)
Currency regime:
Free float (freely convertible)
Inflation target:
3.0% +/- 1 percentage point
Macro forecasts
Source: Danske Bank Markets
FX forecasts
Source: Macrobond, Danske Bank Markets
Interest rate forecast
Source: Danske Bank Markets
2013 2014 2015 2016
GDP (% y/y) 1.3 2.9 4.0 4.0
GDP deflator (% y/y) 1.8 2.9 2.9 2.9
CPI (% y/y) 3.8 3.8 4.5 3.0
Private consumption (% y/y) 2.9 1.7 3.7 3.9
Fixed investments (% y/y) -1.9 1.4 5.6 5.9
Unemployment (%) 4.3 4.8 4.8 4.8
Current account (% of GDP) -1.3 -1.3 -1.5 -1.6
Danske Forward
16-Jun 17.68
+3M 17.49 17.80
+6M 17.16 17.91
+12M 16.70 18.15
Danske Forward
16-Jun 13.03
+3M 13.15 13.11
+6M 13.20 13.19
+12M 13.25 13.34
USD/MXN
EUR/MXN
Policy rate
Next meeting
Next change - Unchanged 2014
End-2014
11 Jul 2014
Bank of Mexico (Banxico)3.00
3.00
14 | 17 June 2014 www.danskeresearch.com
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Emerging Markets Briefer
China
Macro outlook
Growth has started to stabilise after slowing since Q3 13 on the back of the People’s
Bank of China’s (PBoC) de facto monetary tightening in 2013. We expect growth to
improve moderately in H2 14 due to moderate easing of both monetary and fiscal policy
and some improvement in exports to developed markets.
There is still a risk that the government’s bid to deleverage the Chinese economy could
turn into a severe credit crunch. However, credit growth has started to stabilise and most
credit risk indicators have improved markedly recently. Hence, the risk of renewed
money market stress has declined and the risk to our 7.4% GDP growth forecast for 2014
has become more balanced.
Inflationary pressure remains subdued but higher food prices are expected to push
inflation higher in H2 but we expect inflation to stay below 3% y/y – below the
government’s 3.5% critical threshold, leaving room to ease if needed.
Monetary policy outlook
Money market rates and bond yields have declined markedly since end-2013,
suggesting that monetary policy has been eased although both the leading interest
rates have so far been left unchanged. In June, the PBoC announced a 50bp targeted
cut in the reserve requirement for smaller banks. However, with focus on reigning in
excessive credit growth, the PBoC will only ease reluctantly. An across-the-board cut
in the reserve requirement for all banks is still possible but the PBoC does not at this
stage appear willing to cut the leading interest rates.
FX outlook
The CNY has weakened since the PBoC widened the daily trading band in March for
USD/CNY to +/-2% from +/-1% previously. So far this year, the CNY has weakened
by 2.6% against the USD. In our view, PBoC is not targeting a major depreciation of
CNY but is mainly hoping that that more two-way volatility in the exchange rate will
deter speculative capital inflows into China. The wider trading band should be
regarded as another step towards a floating exchange rate and a convertible currency.
China’s current account surplus above 2% of GDP and continued gains in market share
on global export markets in our view suggest that the Chinese currency is still slightly
undervalued. Hence, we believe the CNY remains on a moderate appreciation path in the
medium term. However, as long as the PBoC has an easing bias we expect USD/CNY to
move sideways at the upper end of the daily trading band, but with the economy expected
to recover moderately in H2 14 we also expect CNY to resume a moderate appreciation.
PBoC is not targeting major depreciation of the CNY
China appears to have bottomed out
Source: Macrobond Source: Macrobond, Danske Bank Markets
CNY
Credit rating:
S&P: AA- (stable)
Currency regime:
Crawling USD peg
Inflation target:
3.5% for 2014
Interest rate forecast
Source: Danske Bank Markets
FX forecasts
Source: Macrobond, Danske Bank Markets
Policy rate
Next meeting
Next change - Unchanged 2014
End-2014
Not announced
People's Bank of China (PBOC)6.00
6.00
Danske Forward
16-Jun 8.45
+3M 8.23 8.49
+6M 7.98 8.52
+12M 7.62 8.57
Danske Forward
16-Jun 6.23
+3M 6.19 6.26
+6M 6.14 6.27
+12M 6.05 6.30
USD/CNY
EUR/CNY
15 | 17 June 2014 www.danskeresearch.com
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Emerging Markets Briefer
Indonesia
Macro outlook
The Indonesian economy has been balancing close to overheating in recent years and
Indonesia’s current account has deteriorated markedly since 2011. However, the
current account deficit in Q1 14 declined markedly to around 2% of GDP from around
4% of GDP in Q3 13, meaning it is now more or less covered by foreign direct
investment (FDI) inflows. Growth has been slowing moderately in recent quarters to
below 5.5% y/y in Q1 14, but growth is expected to stabilise in Q2 and improve
slightly in H2 14.
Inflation has started to ease slightly after it surged above 8% y/y last year on the back
of a weaker IDR and a cut in subsidies on gasoline and diesel. Inflation should decline
markedly in H2 14 as the impact of the cut in government subsidies starts to wane.
Monetary policy outlook
Bank of Indonesia (BI) hiked interest rates aggressively last year n the wake of the
plunge in the IDR and the jump in inflation after energy subsidies were cut last. We
expect inflation to decline gradually as the impact of the cut in subsidies starts to
wane but we do not expect BI to cut interest rates until political uncertainty has been
reduced in connection with a possible second-round presidential election in
September.
FX outlook
2014 is a year with considerable political uncertainty. The main opposition party
PDI-P performed far from as strongly as expected in connection with the
parliamentary election on 9 April, although its candidate Joko Widodo is still
expected to win the presidential election in July or September (if a second round is
needed). Hence, a new PDI-P-led government would be dependent on the support of
other parties and for that reason it is likely to be a weak government. In policy terms,
we expect Indonesia to continue its slide towards a more nationalistic and populist
policy, with a negative impact on FDI and competitiveness.
Following its plunge last year, the IDR is no longer overvalued and its current account
deficit no longer excessive. However, because of foreign investors’ large share in
Indonesian government bonds, Indonesia is particularly sensitive to Fed tapering. In
addition, Indonesia’s balance of payments could be affected by the lack of policy
adjustments in 2014 and a push in a more protectionist direction. We still see
moderate depreciation of the IDR on a 12-month horizon.
CA deficit no longer excessive and
portfolio investments returning
IDR stabilisation could pave the way
for an interest rate cut in late 2014
Source: Macrobond Source: Macrobond
IDR
Credit rating:
S&P: BB+ (stable)
Currency regime:
Free float
Inflation target:
3.5-5.5% for 2014
Interest rate forecast
Source: Danske Bank Markets
FX forecasts
Source: Macrobond, Danske Bank Markets
Policy rate
Next meeting
Next change - 25 bp Q4 2014
End-2014
7.50
10 Jul 2014
Bank Indonesia (BI)
7.25
Danske Forward
16-Jun 15999
+3M 15561 16105
+6M 14950 16351
+12M 15120 16933
Danske Forward
16-Jun 11818
+3M 11700 11863
+6M 11500 12038
+12M 12000 12448
USD/IDR
EUR/IDR
16 | 17 June 2014 www.danskeresearch.com
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Emerging Markets Briefer
India
Macro outlook
GDP growth has slowed markedly to less than 5% after double-digit growth just
before the global financial crisis started in 2008. The slowdown has been driven by
both monetary tightening and a slowdown in India’s potential growth as the pace of
economic reforms has slowed.
India’s current account has also improved markedly to less than 0.5% of GDP in
Q1 14, from more than 5% of GDP in H2 13.
The general election concluded in May gave main opposition party BJP an outright
majority in the Lower House. Hence, it appears that India will get a relatively strong
government which will again lead to accelerated economic reforms. In 2014, GDP
growth is likely to remain subdued slightly below 5%. With inflation gradually under
control and external balances substantially improved, India now appears well
positioned for a recovery in 2015 and 2016.
Monetary policy outlook
The new Reserve Bank of India’s (RBI) governor Raghuram Rajan has attempted to
signal an increasingly independent monetary policy and, among other things, RBI is
planning to move gradually towards a pure inflation target using traditional CPI instead
of currently wholesale prices. A report commissioned by the RBI recommends the
inflation target for CPI should eventually be 4% +/-2%., With CPI inflation currently
more than 8% y/y this is very ambitious. Hence, a possible new inflation target suggests a
more hawkish RBI and it now looks less likely that the RBI will cut its leading interest
rates until late H2 14.
FX outlook
INR has appreciated markedly in recent months and we expect the appreciation to
continue in the short term. The main drivers include 1) a marked improvement in the
current account, 2) possible acceleration in economic reforms under a strong new
BJP-led government, 3) credible/hawkish central bank and 4) dovish central banks in
the developed countries. In 2015, gradual monetary tightening in the US should
gradually start to weigh on INR. However, because the Indian money and bond
market is relatively closed, India should also be less sensitive to higher interest rates
in the US than other EM.
External balances have improved
markedly
Deleveraging in India will soon come to
an end
Source: Macrobond, Danske Bank Markets Source: Macrobond, Danske Bank Markets
INR
Credit rating:
S&P: BBB- (negative)
Currency regime:
Free float
Inflation target:
5% medium term
Interest rate forecast
Source: Danske Bank Markets
FX forecasts
Source: Macrobond, Danske Bank Markets
Policy rate
Next meeting
Next change - 25 bp Q4 2014
End-2014
05 Aug 2014
8.00
Reserve Bank of India (RBI)
7.75
Danske Forward
16-Jun 81.61
+3M 79.14 82.61
+6M 75.40 84.05
+12M 74.34 87.16
Danske Forward
16-Jun 60.13
+3M 59.50 60.85
+6M 58.00 61.88
+12M 59.00 64.07
USD/INR
EUR/INR
17 | 17 June 2014 www.danskeresearch.com
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FX forecasts
Core – major
Source: Macrobond, Danske Bank Markets
Wider CEE
Source: Macrobond, Danske Bank Markets
Baltics
Source: Macrobond, Danske Bank Markets
Danske Forward Danske Forward Danske Forward Danske Forward Danske Forward
16-Jun 1.36 745.6 899.2 812.6
+3M 1.33 1.36 746.0 745.4 890.0 900.0 800.0 815.6
+6M 1.30 1.36 746.0 745.1 880.0 903.5 795.0 818.7
+12M 1.26 1.36 746.0 744.8 870.0 903.5 785.0 825.1
16-Jun 1.36 549.4 662.5 598.7
+3M 1.33 1.36 560.9 549.1 669.2 662.9 601.5 600.8
+6M 1.30 1.36 573.8 548.6 676.9 665.2 611.5 602.7
+12M 1.26 1.36 592.1 547.5 690.5 664.2 623.0 606.6
16-Jun 138.3 101.9 5.39 6.50 5.88
+3M 140.0 138.1 105.3 101.8 5.33 5.40 6.36 6.52 5.71 5.91
+6M 143.0 138.0 110.0 101.7 5.22 5.40 6.15 6.54 5.56 5.93
+12M 144.0 137.9 114.3 101.5 5.18 5.40 6.04 6.55 5.45 5.98
NOK
EUR
USD
JPY
EUR USD DKK SEK
Danske Forward Danske Forward Danske Forward Danske Forward Danske Forward
16-Jun 4.14 3.05 180.0 217.0 196.1
+3M 4.05 4.16 3.05 3.07 184.2 179.0 219.8 216.1 197.5 195.8
+6M 4.10 4.19 3.15 3.08 182.0 178.0 214.6 215.9 193.9 195.6
+12M 4.15 4.23 3.29 3.11 179.8 176.1 209.6 213.7 189.2 195.1
16-Jun 307.8 226.8 2.42 2.92 2.64
+3M 305.0 308.4 229.3 227.2 2.45 2.42 2.92 2.92 2.62 2.64
+6M 305.0 309.2 234.6 227.7 2.45 2.41 2.89 2.92 2.61 2.65
+12M 305.0 311.3 242.1 228.8 2.45 2.39 2.85 2.90 2.57 2.65
16-Jun 27.44 20.22 27.18 32.77 29.62
+3M 27.40 27.40 20.60 20.18 27.23 27.21 32.48 32.85 29.20 29.77
+6M 27.40 27.38 21.08 20.15 27.23 27.22 32.12 33.00 29.01 29.91
+12M 27.30 27.33 21.67 20.09 27.33 27.25 31.87 33.05 28.75 30.19
16-Jun 4.40 3.24 169.6 204.5 184.8
+3M 4.40 4.40 3.31 3.24 169.5 169.4 202.3 204.6 181.8 185.4
+6M 4.40 4.42 3.38 3.25 169.5 168.7 200.0 204.6 180.7 185.4
+12M 4.40 4.45 3.49 3.27 169.5 167.3 197.7 203.0 178.4 185.4
EUR USD DKK SEK NOK
PLN
HUF
CZK
RON
Danske Forward Danske Forward Danske Forward Danske Forward Danske Forward
16-Jun 3.45 2.54 215.9 260.4 235.3
+3M 3.45 3.45 2.59 2.54 216.2 - 258.0 - 231.9 -
+6M 3.45 3.45 2.65 2.54 216.2 - 255.1 - 230.4 -
+12M 3.45 3.44 2.74 2.53 216.2 - 252.2 - 227.5 -
EUR USD DKK
LTL
SEK NOK
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CIS
Source: Macrobond, Danske Bank Markets
MEA
Source: Macrobond, Danske Bank Markets
LATAM
Source: Macrobond, Danske Bank Markets
Danske Forward Danske Forward Danske Forward Danske Forward Danske Forward
16-Jun 47.00 34.63 15.87 19.13 17.29
+3M 48.94 47.93 36.80 35.30 15.24 15.55 18.18 18.78 16.35 17.02
+6M 49.80 48.92 38.31 36.01 14.98 15.23 17.67 18.47 15.96 16.74
+12M 51.00 50.88 40.48 37.40 14.63 14.64 17.06 17.76 15.39 16.22
16-Jun 15.95 11.75 46.7 56.4 50.9
+3M 19.95 16.13 15.00 11.88 37.4 N/A 44.6 N/A 40.1 N/A
+6M 19.50 16.14 15.00 11.88 38.3 N/A 45.1 N/A 40.8 N/A
+12M 18.90 16.16 15.00 11.88 39.5 N/A 46.0 N/A 41.5 N/A
16-Jun 249.1 183.5 2.99 3.61 3.26
+3M 252.70 249.10 190.00 183.49 3.0 3.0 3.5 3.6 3.2 3.3
+6M 249.60 249.24 192.00 183.49 3.0 3.0 3.5 3.6 3.2 3.3
+12M 245.70 249.61 195.00 183.49 3.0 3.0 3.5 3.6 3.2 3.3
RUB
NOK
UAH
KZT
EUR USD DKK SEK
Danske Forward Danske Forward Danske Forward Danske Forward Danske Forward
16-Jun 2.91 2.14 256.4 309.2 279.4
+3M 2.82 2.96 2.12 2.18 264.5 251.6 315.6 303.7 283.7 275.3
+6M 2.80 3.02 2.15 2.23 266.4 246.5 314.3 298.9 283.9 270.8
+12M 2.77 3.14 2.20 2.31 269.3 236.9 314.1 287.4 283.4 262.5
16-Jun 14.58 10.74 51.2 61.7 55.7
+3M 14.90 14.76 11.20 10.87 50.1 50.5 59.7 61.0 53.7 55.2
+6M 14.69 14.99 11.30 11.04 50.8 49.7 59.9 60.3 54.1 54.6
+12M 14.62 15.52 11.60 11.41 51.0 48.0 59.5 58.2 53.7 53.2
16-Jun 4.69 3.46 158.9 191.7 173.2
+3M 4.66 4.69 3.50 3.45 160.3 159.1 191.2 192.0 171.9 174.0
+6M 4.55 4.68 3.50 3.45 164.0 159.1 193.4 192.9 174.7 174.8
+12M 4.47 4.68 3.55 3.44 166.8 159.0 194.5 192.9 175.5 176.1
16-Jun 9.71 7.15 76.8 92.6 83.7
+3M 9.31 9.84 7.00 7.25 80.1 75.8 95.6 91.5 85.9 82.9
+6M 9.75 9.98 7.50 7.35 76.5 74.7 90.3 90.6 81.5 82.1
+12M 10.08 10.27 8.00 7.55 74.0 72.5 86.3 88.0 77.9 80.4
TRY
USDEUR SEK
ZAR
EGP
DKK NOK
ILS
Danske Forward Danske Forward Danske Forward Danske Forward Danske Forward
16-Jun 3.03 2.24 245.7 296.3 267.8
+3M 2.99 3.11 2.25 2.29 249.3 239.7 297.4 289.4 267.3 262.3
+6M 2.93 3.19 2.25 2.35 255.0 233.7 300.9 283.4 271.8 256.8
+12M 2.90 3.34 2.30 2.45 257.4 223.0 300.2 270.5 270.9 247.1
16-Jun 17.68 13.03 42.17 50.85 45.95
+3M 17.49 17.80 13.15 13.11 42.65 41.88 50.89 50.56 45.74 45.82
+6M 17.16 17.91 13.20 13.19 43.47 41.60 51.28 50.45 46.33 45.71
+12M 16.70 18.15 13.25 13.34 44.68 41.03 52.11 49.78 47.02 45.46
NOKEUR USD DKK SEK
MXN
BRL
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Emerging markets Asia
Source: Macrobond, Danske Bank Markets
Danske Forward Danske Forward Danske Forward Danske Forward Danske Forward
16-Jun 8.45 6.23 88.3 106.4 96.2
+3M 8.23 8.49 6.19 6.26 90.6 87.8 108.1 106.0 97.2 96.0
+6M 7.98 8.52 6.14 6.27 93.5 87.5 110.2 106.1 99.6 96.1
+12M 7.62 8.57 6.05 6.30 97.9 86.9 114.1 105.5 103.0 96.3
16-Jun 1385 1020 0.54 0.65 0.59
+3M 1343 1382 1010 1018 0.56 0.54 0.66 0.65 0.60 0.59
+6M 1365 1388 1050 1022 0.55 0.54 0.64 0.65 0.58 0.59
+12M 1348 1400 1070 1029 0.55 0.53 0.65 0.65 0.58 0.59
16-Jun 43.9 32.4 17.0 20.5 18.5
+3M 43.2 44.0 32.5 32.4 17.3 16.9 20.6 20.4 18.5 18.5
+6M 42.8 44.2 32.9 32.5 17.4 16.9 20.6 20.4 18.6 18.5
+12M 41.8 44.7 33.2 32.9 17.8 16.7 20.8 20.2 18.8 18.5
16-Jun 1.70 1.25 439 530 479
+3M 1.65 1.70 1.24 1.25 452 439 540 530 485 481
+6M 1.65 1.70 1.27 1.25 452 439 533 532 482 482
+12M 1.61 1.70 1.28 1.25 463 438 539 532 487 485
16-Jun 10.52 7.75 70.9 85.5 77.2
+3M 10.32 10.52 7.76 7.75 72.3 70.8 86.2 85.5 77.5 77.5
+6M 10.09 10.53 7.76 7.75 73.9 70.8 87.2 85.8 78.8 77.8
+12M 9.79 10.54 7.77 7.75 76.2 70.6 88.9 85.7 80.2 78.3
16-Jun 4.37 3.23 170.8 206.0 186.2
+3M 4.22 4.40 3.17 3.24 176.9 169.5 211.1 204.6 189.7 185.5
+6M 4.24 4.42 3.26 3.26 176.0 168.4 207.6 204.2 187.6 185.1
+12M 4.22 4.48 3.35 3.29 176.7 166.3 206.1 201.8 186.0 184.3
16-Jun 59.4 43.9 12.55 15.13 13.67
+3M 57.86 N/A 43.50 N/A 12.89 N/A 15.38 N/A 13.83 N/A
+6M 57.20 N/A 44.00 N/A 13.04 N/A 15.38 N/A 13.90 N/A
+12M 56.70 N/A 45.00 N/A 13.16 N/A 15.34 N/A 13.84 N/A
16-Jun 15999 11818 0.047 0.056 0.051
+3M 15561 16105 11700 11863 0.048 0.046 0.057 0.056 0.051 0.051
+6M 14950 16351 11500 12038 0.050 0.046 0.059 0.055 0.053 0.050
+12M 15120 16933 12000 12448 0.049 0.044 0.058 0.053 0.052 0.049
16-Jun 81.61 60.13 9.14 11.02 9.96
+3M 79.14 82.61 59.50 60.85 9.43 9.02 11.25 10.89 10.11 9.87
+6M 75.40 84.05 58.00 61.88 9.89 8.87 11.67 10.75 10.54 9.74
+12M 74.34 87.16 59.00 64.07 10.03 8.54 11.70 10.37 10.56 9.47
16-Jun 40.77 30.04 18.29 22.05 19.93
+3M 39.90 40.68 30.00 29.97 18.70 18.32 22.31 22.12 20.05 20.05
+6M 39.00 40.60 30.00 29.89 19.13 18.35 22.56 22.25 20.38 20.16
+12M 39.06 40.47 31.00 29.75 19.10 18.40 22.27 22.33 20.10 20.39
TWD
INR
SEK NOK
CNY
KRW
EUR
IDR
THB
SGD
HKD
MYR
PHP
USD DKK
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Forecasts vs forwards
3M – base currency EUR 3M – base currency USD
Source: Macrobond, Danske Bank Markets Source: Macrobond, Danske Bank Markets
6M – base currency EUR 6M – base currency USD
Source: Macrobond, Danske Bank Markets Source: Macrobond, Danske Bank Markets
12M – base currency EUR 12M – base currency USD
Source: Macrobond, Danske Bank Markets Source: Macrobond, Danske Bank Markets
-3.0-2.0-1.00.01.02.03.04.05.06.0
EG
P
TR
Y
INR
MY
R
BR
L
IDR
CN
Y
SG
D
KR
W
PL
N
TW
D
MX
N
HU
F
ILS
RO
N
CZ
K
ZA
R
RU
B
%
-5.0-4.0-3.0-2.0-1.00.01.02.03.04.0
EG
P
TR
Y
INR
MY
R
BR
L
IDR
CN
Y
SG
D
KR
W
PL
N
TW
D
MX
N
HU
F
ILS
RO
N
CZ
K
ZA
R
RU
B
%
-4.0
-2.0
0.0
2.0
4.0
6.0
8.0
10.0
12.0
INR
IDR
BR
L
TR
Y
CN
Y
MY
R
MX
N
TW
D
ILS
SG
D
EG
P
PL
N
ZA
R
KR
W
HU
F
RO
N
CZ
K
RU
B
%
-8.0
-6.0
-4.0
-2.0
0.0
2.0
4.0
6.0
8.0
INR
IDR
BR
L
TR
Y
CN
Y
MY
R
MX
N
TW
D
ILS
SG
D
EG
P
PL
N
ZA
R
KR
W
HU
F
RO
N
CZ
K
RU
B
%
-2.00.02.04.06.08.0
10.012.014.016.0
INR
BR
L
TR
Y
CN
Y
IDR
MX
N
ZA
R
MY
R
SG
D
ILS
KR
W
TW
D
HU
F
PL
N
EG
P
RO
N
CZ
K
RU
B
%
-10.0-8.0-6.0-4.0-2.00.02.04.06.08.0
10.0
INR
BR
L
TR
Y
CN
Y
IDR
MX
N
ZA
R
MY
R
SG
D
ILS
KR
W
TW
D
HU
F
PL
N
EG
P
RO
N
CZ
K
RU
B
%
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Monetary policy calendar
Calendar
Source: Danske Bank Markets
17 June 2014
Wider CEE
PLN 2.50 - 25 bp July, 2013 - Unchanged 2014 02 July 2014 2.50
HUF 2.40 - 10 bp May, 2014 - 10 bp June, 2014 24 June 2014 2.00
CZK 0.05 - 20 bp Nov, 2012 - Unchanged 2014 26 June 2014 0.05
RON 3.50 - 25 bp Feb,2014 - H2, 2014 01 July 2014 3.25
TRY 9.50 -50 bp May, 2014 -50bp H1, 2014 24 June 2014 8.00
CIS
RUB 7.50 +50 bp April, 2014 - 50 bp Q4 2014 25 July 2014 7.00
MEA
ILS 0.75 - 25 bp Feb, 2014 - Unchanged 2014 23 June 2014 0.75
ZAR 5.50 +50 bp Jan, 2014 +25bp H2, 2014 17 July 2014 6.00
LATAM
BRL 11.00 + 25 bp May, 2014 + 25 bp H2, 2014 16 July 2014 11.25
MXN 3.00 - 50 bp June, 2014 - Unchanged 2014 11 July 2014 3.00
EM Asia
CNY 6.00 - 31 bp Jul, 2012 - Unchanged 2014 Not announced 6.00
KRW 2.50 - 25 bp May, 2013 + 25 bp Q4 2014 10 July 2014 2.75
THB 2.00 - 25 bp Feb, 2014 - Unchanged 2014 18 June 2014 2.00
HKD 0.50 - 100 bp Dec, 2008 + 25 bp Q2 2015 Not announced 0.50
MYR 3.00 + 25 bp May, 2011 + 25 bp Q4 2014 10 July 2014 3.25
PHP 3.50 - 25 bp Oct, 2012 + 25 bp Q4 2014 19 June 2014 3.75
IDR 7.50 + 25 bp Oct, 2013 - 25 bp Q4 2014 10 July 2014 7.25
INR 8.00 + 25 bp Jan, 2014 - 25 bp Q4 2014 05 August 2014 7.75
TWD 1.875 +12.5 bp Jun, 2011 + 12.5 bp Q4 2014 26 June 2014 2.00
Year-end 2014 (%)
Next MeetingPolicy Rate (%) Latest Change Next Change
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Emerging Markets Contacts
Emerging Markets Research
Lars Christensen +45 45 12 85 30 [email protected]
Flemming Jegbjærg Nielsen +45 45 12 85 35 [email protected]
Stanislava Pravdová-Nielsen +45 45 12 80 71 [email protected]
Vladimir Miklashevsky +358 10 546 7522 [email protected]
Narayani Sritharan +45 45 12 85 48 [email protected]
Global Retail SME, FX
Stig Hansen +45 45 14 60 86 [email protected]
Flemming Winther +45 45 14 68 24 [email protected]
Trading FX, Fixed Income, Danske Markets
Frank Sandbæk Vig +45 45 14 67 96 [email protected]
Thomas Manthorpe +45 45 14 69 68 [email protected]
Markku Anttila +358 10 513 8705 [email protected]
Perttu Tuomi +358 10 513 8738 [email protected]
Danske Bank Poland, Warsaw
Maciej Semeniuk +48 22 33 77 114 [email protected]
Bartłomiej Dzieniecki +48 22 33 77 112 [email protected]
Danske Markets Baltics
Howard Wilkinson +358 50 374 559 [email protected]
Martins Strazds +371 6707 2245 [email protected]
Giedre Geciauskiene +370 5215 6180 [email protected]
Rainer Änilane +372 675 2471 rainer.anilane@ danskebank.ee
ZAO Danske Bank, St. Petersburg Treasury Department
Lenina Rautonen +7 921 797 57 80 [email protected]
Vladimir Biserov +7 812 332 73 04 [email protected]
Irina Voronova +7 812 332 73 04 [email protected]
Marina Rautonen +7 812 332 73 00 [email protected]
All EM research is available on Bloomberg DMEM
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Disclosures This research report has been prepared by Danske Bank Markets, a division of Danske Bank A/S (‘Danske
Bank’). The author of this research report is Lars Christensen, Chief Analyst.
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