Rising Inflationary Pressures Is Leading To More 'Panic' Tightening

• As inflationary pressures continue to surprise positively in the EM world, a rising number of central banks have been surprising the market by hiking more aggressively in recent weeks to reduce the inflation risks going forward.
• Yesterday, the Chilean central bank decided to raise its benchmark rate by 125bps (supported by the entire board), which was above the 75-100bps expected by market participants.
• Last week, it was Poland that decided to surprise markets by raising its benchmark rate by 40bps for the first time since 2012 as inflation keeps surging with CPI September coming in above expectations at 5.8% YoY. The market was expecting the NBP to keep its policy rate unchanged following recent policymakers' speeches.
• The chart below shows the changes in the major EM central banks' policy rate in 2021.
• The most aggressive EM central bank so far has been the CBB, which raised its policy rate by 4.25% since January to 6.25% (Selic was at 6.5% prior the Covid shock).
• Not surprisingly, the TRY is the worst performer this year, down nearly 20% against the USD, amid rising political and economic uncertainty, especially after the CBRT decided to cut its benchmark rate by 1% last month to 18%, which sent the Lira to new all-time lows.
• Interestingly, as inflationary pressures has eased in some Asian / SE Asian economies (i.e. Indonesia, Thailand, Malaysia...), central banks have kept interest rates steady while the economic recovery is taking place.

Source: Bloomberg/MNI