Cuts to interest rates can be expected around the world following dovish pivots from the European Central Bank and the U.S. Federal Reserve, according to analysts at Deutsche Bank.
Deutsche strategists project that a host of emerging market (EM) central banks will follow suit, as they gear up to deliver extra stimulus and “contain the propagation of trade shocks.” Lower financing costs from central banks are generally aimed at stimulating economic growth by encouraging businesses to borrow and invest.
In a published note Deutsche Bank strategists Quinn Brody, Himanshu Porwal and Jim Reid revised down growth forecasts for emerging markets in 2019, suggesting that EM manufacturing activity “now exhibits a pattern of persistent weakness” similar to that in developed markets.
They therefore forecast cuts in Russia, South Africa, Turkey, India, Indonesia, Philippines, Vietnam, Brazil and Chile.
“Asian economies are being particularly weighed down by persistent trade policy shocks,” the note said, adding that in Latin America, growth expectations for Brazil and Mexico continue to deteriorate for 2019.
The South African Reserve Bank last week announced its first cut to interest rates in over a year, lowering rates by 25 basis points to 6.5%, as Africa’s most industrialized economy tackles low inflation and its starkest contraction for over a decade in the first quarter of 2019.
Turkey’s central bank is expected to cut its benchmark rate on Thursday, after Turkish President Recep Tayyip Erdoğan sacked the former governor Murat Çetinkaya this month, criticizing him for declining the government’s requests for rate cuts.
Deutsche analysts determined, however, that the macro backdrop for Central and Eastern Europe, the Middle East and Africa has deteriorated less than in the rest of the emerging markets, with CEEMEA countries least under stress.
This is “notwithstanding contingent liabilities issues in South Africa, ongoing sanctions in Russia and potential for similar measures in Turkey,” the note added.