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We have had two central bank meetings in CEE today: Poland and Turkey. The benchmark interest rate in Poland was last recorded at 1.50%. The NBP had to pass without incident, with rates and guidance left unchanged. Inflation has surprised to the downside around the region since the last meeting, the MPC is anyway wholly dovish and has recently re-affirmed its guidance that rates are likely to be left on hold all year.
In Turkey, too, status quo is maintained in CBRT monetary policy. The Central Bank of Turkey held its benchmark one-week repo rate at 8% on March 7th, as widely expected, saying that the current monetary policy stance will be maintained until there is a significant improvement in the inflation outlook. In February, the country's annual inflation eased to a seven-month low of 10.26% but was still way above the central bank's 5% target.
Things could have been different had the risk-off mood triggered by the US wage data in February intensified into a bigger EM problem. But it did not: things calmed down; the lira, while marginally weaker than at the beginning of the year, is under no particular pressure.
We tactically trim our overall EM FX exposure to MW (from OW) on a balanced short-term risk outlook.
In CEE, we reduce the size of longs in PLN, HUF, and CZK and increase short in RON. In the high yielders, we reduce our OW RUB and increase our UW TRY. Importantly, while we trim risk, we maintain idiosyncratic currency choices. We add new tactical EURHUF short to our outright portfolio.
Latin America FX: We are neutral FX overall and recommend long positions in ARS and BRL vs. hedges via short MXN and PEN.
EM Asia FX: We are neutral FX after closing our longstanding bullish MYR position. We are long FX through outright longs in KRW, TWD, and SGD.
A conflicting movement of KRW this morning. USDKRW opened below the 1065 level due to North Korea’s denuclearization talks. Obviously, South Korea should be on the top list benefiting from the eased geopolitical tension. The enthusiasm did not last long, however, as Gary Cohn's resignation raised fears that the trade war might soon escalate. As an export-oriented economy, South Korea is also on the top list of potential victims if trade conflicts intensify. The market started to buy back USD and pushed USDKRW back to the 1070 hurdle.
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