{"id":291280,"date":"2018-12-18T16:13:02","date_gmt":"2018-12-18T14:13:02","guid":{"rendered":"https:\/\/businesstech.co.za\/news\/?p=291280"},"modified":"2018-12-18T16:13:02","modified_gmt":"2018-12-18T14:13:02","slug":"how-to-avoid-an-emerging-market-crisis-in-2019","status":"publish","type":"post","link":"https:\/\/businesstech.co.za\/news\/banking\/291280\/how-to-avoid-an-emerging-market-crisis-in-2019\/","title":{"rendered":"How to avoid an emerging market crisis in 2019"},"content":{"rendered":"
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Where Russia\u2019s central bank goes, other emerging market policymakers should follow.<\/p>\n

The country set an important precedent last week by raising interest rates 25 basis points to 7.75%, its second preemptive hike since September.<\/p>\n

Turkey, South Africa and others\u00a0should take note of its hawkishness.<\/p>\n

The escape route from the the past summer\u2019s emerging market crisis was pushing up rates. And with the risks that sparked the selloff still very much with us, this strategy remains the best bet for countries wishing to avoid a repeat in 2019.<\/p>\n

You need nerves of steel to look at weak domestic growth and hike anyway to make sure you\u2019re equipped to deal with any possible global strife. But it\u2019s smart central banking from Russia.<\/p>\n

There are local reasons too for Russia\u00a0to be proactive. Its sales tax will rise to 20 percent from 18% in 2019, probably pushing inflation briefly above the central bank\u2019s target range. It will want to rein that in.<\/p>\n

Plus there\u2019s the threat of more international sanctions because of its actions around Ukraine.<\/p>\n

Higher interest rates now should mitigate any downside pressure on the ruble. They also let\u00a0the country resume daily purchases of dollars to rebuild its currency reserves.<\/p>\n

Turkey, by contrast, seems less committed to this approach.\u00a0At its central bank policy meeting on Thursday, officials chose to omit the word \u201cdecisively\u201d\u00a0from their previous wording on keeping its interest rate approach tight.<\/p>\n

This may not seem much, but it was enough to cause\u00a0a brief wobble in the lira.<\/p>\n

That shows\u00a0how sensitive investors are to the hint of any premature reversal of the painful 650 basis point hike that the central bank was forced into on Sep. 13.<\/p>\n

That massive increase was necessary to finally get hold of runaway inflation and halt the slump in the lira.<\/p>\n

But while things have become more normal there, the lira is still among the worst-performing emerging currencies\u00a0against the dollar, down by almost 2%.<\/p>\n

While Turkey\u2019s CPI has fallen from a peak of 25.2% to 21.6% in November, it remains more than four times higher than the official target.<\/p>\n

There may be a point in 2019 when interest rates can be carefully lowered, but not before inflation is clearly trending downward.<\/p>\n

Having let inflation run riot, more medicine is needed to prevent a rerun of the country\u2019s savage crisis \u2013 even if there is intense political pressure on the central bank to cut rates.<\/p>\n

South Africa also might want to look to\u00a0Russia. As the most liquid of emerging market currencies, the rand is highly sensitive to investor flows.<\/p>\n

Its Achilles heel is the primary income balance: It pays out far more interest to foreign holders of its government debt than is covered by its trade surplus on precious metals.<\/p>\n

The country\u2019s Reserve Bank did finally raise rates by 25 basis points to 6.75% on Nov. 22, but it was a split decision. Governor Lesetja Kganyago delivered the deciding vote, despite domestic growth and inflation forecasts being lowered.<\/p>\n

He emphasized\u00a0tighter global conditions, increased volatility and worsening sentiment toward emerging markets. Wise words. Yet the rand remains vulnerable still, having fallen more than 4% against the dollar in December.<\/p>\n

Prudent central banks will want to avoid being dragged again into a global \u201crisk-off\u201d maelstrom. That requires leaving a little interest rate insurance in place for 2019.<\/p>\n

\"\"<\/a><\/p>\n

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Read: South Africa faces a bumpy 2019<\/a><\/strong><\/p>\n<\/div>\n<\/div>\n","protected":false},"excerpt":{"rendered":"

Where Russia\u2019s central bank goes, other emerging market policymakers should follow.<\/p>\n","protected":false},"author":59,"featured_media":222767,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[961],"tags":[26],"class_list":["post-291280","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-banking","tag-headline"],"_links":{"self":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/291280","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/users\/59"}],"replies":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/comments?post=291280"}],"version-history":[{"count":1,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/291280\/revisions"}],"predecessor-version":[{"id":291284,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/291280\/revisions\/291284"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/media\/222767"}],"wp:attachment":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/media?parent=291280"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/categories?post=291280"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/tags?post=291280"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}