"Expansion of Interest Rate Hike Movements in Emerging Markets in the Second Half... Russia, Chile, Czech Republic, etc."

[Asia Economy Reporter Kim Eunbyeol] It has been analyzed that inflationary factors such as supply chain bottlenecks are unlikely to be resolved in the short term, and concerns over the normalization of U.S. monetary policy in the second half of the year may coincide, increasing the likelihood of interest rate hikes in emerging markets.

According to the "Recent Major Emerging Market Policy Rate Hike Status and Background" report by the International Finance Center on the 25th, Brazil, Russia, Chile, the Czech Republic, and Hungary are expected to implement additional rate hikes within the year.

Investment banks (IBs) expect Brazil to raise rates by 200 basis points (bp) (1bp = 0.01 percentage points). Russia is forecasted to raise rates by 60bp, Chile by 40bp, the Czech Republic by 20bp, and Hungary by 5bp.

There are also countries likely to newly join the policy rate hike trend. Colombia is expected to raise its rate by 30bp from the current 1.75% to 2.05% by the end of the year, and Nigeria is expected to increase rates by 50bp from 11.50% to 12.00%. Peru, with a current base rate of around 0.25%, is expected to normalize rates by raising them 10bp to 0.35%. Poland is also expected to raise rates from 0.10% to 0.15%.

Previously, Turkey raised its policy rate for the first time in September last year and has increased rates four times through March this year. Brazil and Russia have also implemented three rate hikes since March.

The International Finance Center explained, "The policy rate hikes in major emerging markets are commonly aimed at curbing inflation due to strengthening economic recovery," adding, "In some countries, the recent sharp depreciation of their currencies is also a factor driving rate hikes."

All seven countries that implemented policy rate hikes this year have seen consumer price inflation rates significantly exceed central bank targets over recent months, increasing the need for price stability. In particular, Turkey's consumer price inflation rate in June approached 17.5%, the highest since May 2019, driven by rising prices of food, daily necessities, and transportation costs.

There were also cases of currency depreciation. The International Finance Center reported, "Emerging market currencies, which had shown strength since April this year, turned weaker after June due to factors such as the spread of COVID-19 variants and increased preference for safe-haven assets." The depreciation rates of currencies in countries that raised rates in June?Hungary (-6.9%), Chile (-5.0%), and the Czech Republic (-4.5%)?were notably larger compared to other countries (Russia -1.8%, Turkey -1.1%, Brazil -0.6%, Mexico -0.6%, etc.).

This content was produced with the assistance of AI translation services.