Word Search Shows Emerging-Market Central Banks Most Dovish in Decade
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Word Search Shows Emerging-Market Central Banks Most Dovish in Decade

(Bloomberg) -- A robot-driven, lexical trawl through thousands of monetary policy reports across emerging markets shows the language of doves is everywhere.

Bank of America’s Emerging Monetary Mood Indicator is at its least hawkish level since 2009. In particular, BofA singles out the change in tone in Russia, which meets on rates this week, as well as South Africa and Mexico.

“Dovish central banks are supportive of emerging-market rates and equities, but cap currency returns, unless the dollar starts to weaken,” wrote BofA’s David Hauner, Eli Kobzev and Kate Pavlovich in a note. “Emerging-market real yields remain decent.”

The index, which tallies the frequency of hawkish language (tighten, bump up, augment) against accommodative words (shave and slice), shows the Indian central bank’s tilt toward policy easing is the strongest among its peers, while the Czech regulator is the most hawkish.

But BofA analysts slot in a strong caveat: While the scan points to the possible direction of sentiment, “it definitely cannot be used as a simplistic leading indicator for the swaps market of the base rate,” they said.

More Findings:
  • Brazil: The EMMI index signals the BCB has turned more dovish
  • Czech Republic: The gauge confirms that the tightening cycle is over. BofA doesn’t forecast any easing until early 2020
  • India: The index has fallen to its lowest levels since 2009 on the six-month moving average. BofA expects the central bank to cut the main interest rate by 35 basis points next month and 50 basis points in December
  • Mexico: The EMMI is quickly getting deeper into dovish territory following weak economic prints and falling inflation
  • Philippines: The gauge is back to the lows of its 17-year range. The central bank will likely cut again on Sept. 26
  • Russia: The central bank has room to cut the key interest rate by 75 basis points over the next 12 months given that inflation will most likely reach its 4% target 
  • South Africa: The central bank has room to cut rates by 25 basis points this month
  • Thailand: The raw EMMI reading is consistent with BofA’s call for two further rate cuts over the next 12 months

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