EM-Stocks hit 3-month low; Turkey, SA central bank decisions eyed

Emerging market stocks hit an over three month low on Thursday as risk sentiment waned after the US Federal Reserve stiffened its hawkish monetary policy stance, while investors awaited interest rate decisions from Turkey and South Africa.

After the Fed left rates unchanged as widely expected, markets focused on the possibility of borrowing costs staying significantly tighter through 2024 than previously expected after the central bank’s updated quarterly projections.

MSCI’s gauge for emerging market equities slid 1.3% to its lowest since early June, while currencies slid 0.3% by 8:48 GMT against a steady dollar.

China’s blue-chip CSI 300 Index index hit an over ten-month low while Hong Kong’s Hang Seng Index dropped 1.3%.

A slew of regional monetary policy decisions will also grab focus later on Thursday, with Turkey expected to deliver a 500 basis point hike at 1100 GMT, taking the benchmark weekly repo rate to 30%, according to a Reuters poll.

The lira was flat at 27.039 to the dollar, having drifted weaker in recent days after a jump late in August following a shock 750 basis point rate hike from the Turkish central bank.

After a historic currency crash in late 2021 and given surging inflation, President Tayyip Erdogan set aside years of opposition to tight monetary policy and publicly backed it this year.

“We have… reached a crucial juncture where the interest rate level may not yet be high enough to be labelled “restrictive” for the ongoing inflation rate,” said Tatha Ghose, FX analyst at Commerzbank in a note.

Erdogan “could be showing support now, but there could come a moment of truth leading up to the 2024 local elections, where he reverses stance,” Ghose added.

Later in the day, markets await the South African central bank’s monetary policy decision where the regulator is widely expected to keep the repo rate on hold at 8.25%. The rand was flat ahead of the decision due at 1300 GMT.

In central and eastern Europe, Poland’s zloty slipped 0.1% against the euro after data showed nominal retail sales in constant prices fell 2.7% in August, lesser than market expectations.

Hungary’s forint fell 0.3% versus the euro after central bank Governor Gyorgy Matolcsy said the country’s headline inflation rate, currently the highest in the European Union, can fall to an annual 7% by the end of this year.