Emerging market dollar-pay spreads remained unchanged at 306 basis points over US Treasuries, while local yields remained steady at 6.57%. Emerging market currency performance was mixed against the US dollar; The Colombian peso (-1.6%) and Russian ruble (-1.2%) depreciated, while the Brazilian real (+4.0%), Hungarian forint (+1.4%) and the South African rand (1.0%) gained. Elections in Brazil yielded an unexpected outcome in the first round where Aecio Neves displaced Marina Silva as the opposition candidate to take on incumbent Dilma Rousseff in the second round. Silva was viewed as the candidate likely to contend with Rousseff, but her support waned under Rousseff’s campaign attacks. Rousseff won 41.6% of the votes while Neves secured 33.5%, significantly higher than polls had predicted. With Silva out of the contest, markets will be keenly watching to see whether her supporters will back Neves, as the runoff election on October 26 is expected to be tight. Elsewhere in Latin America, Peru left rates unchanged at 3.5%. The central bank reiterated that the current policy rate is appropriate to anchor inflation expectations (1-3%) and meet the target for 2015.
In Asia, Bank Indonesia (BI) left rates unchanged at 7.5%, in line with expectations. The central bank highlighted that credit growth had slowed below the government’s target level which could weigh on growth going into 2015. BI also noted that potential fuel price hikes could pose upside risk to the central bank’s inflation projections. BI is expected to hold rates through the end of 2014, barring an unexpected surprise on the inflation front. Poland’s central bank delivered a higher-than-expected 50 basis point cut, bringing the policy rate to 2.0%. Markets had priced in a 25 basis point reduction. This move is viewed as front-loading monetary easing rather than an indication of a more aggressive easing cycle. That said, challenges to growth, and inflation undershooting the bank’s target will determine the trajectory of future rate moves. Emerging market debt funds saw inflows of $0.7 billion, slightly skewed towards local currency funds.