The Bank of Russia unexpectedly maintained its key interest rate at a record-high 21% , defying analysts’ expectations of another significant hike as inflation remains stubbornly elevated. The decision marks a shift toward a more measured approach in balancing economic growth and price stability. Key Details Inflation Concerns: Annual inflation climbed to 8.9% in November, well above the central bank’s 4% target , with inflation expectations reaching 13.9% in December. Policy Rationale: The central bank cited the significant tightening of monetary conditions after October’s 200-basis point hike as sufficient to resume disinflationary processes. Governor Elvira Nabiullina emphasized avoiding both economic overheating and severe slowdowns. Economic Overheating: Elevated government spending on the war in Ukraine and social programs, coupled with labor shortages and rising wages, have fueled strong domestic demand, exacerbating price pressures...
Indonesia and Malaysia have become standout performers in Asia this month, attracting significant foreign investment as global investors reduce their exposure to most other markets in the region. In August, through Thursday, overseas funds have purchased $684 million worth of Indonesian stocks and $241 million in Malaysian shares, marking a second consecutive month of inflows for both markets.
Key Takeaways:
Foreign Inflows Despite Regional Sell-Off: While most Asian markets have seen outflows, Indonesia and Malaysia have attracted substantial foreign investment. Indonesia received $684 million, and Malaysia $241 million in foreign equity inflows, contrasting sharply with the $1.8 billion outflow from India, a market that has been a favorite among emerging market investors.
Factors Behind the Inflows: Indonesia's fiscal discipline and robust economic growth are key drivers behind its attractiveness to foreign investors. Malaysia, on the other hand, is benefiting from the global artificial intelligence (AI) boom, having secured billions of dollars in data center investments. These factors have also led to the ringgit and rupiah being top performers against the dollar among 23 emerging market currencies.
Uncertainty Ahead: Despite the strong inflows, there is uncertainty about whether Indonesia and Malaysia can maintain this momentum. The expected rate cuts by the Federal Reserve could enhance the appeal of emerging markets more broadly, potentially redistributing global capital. Additionally, political developments in Indonesia, such as nationwide protests against proposed election law changes, have introduced volatility, as seen with the recent slide in Indonesian stocks and the rupiah.
As investors weigh the potential for further gains in Indonesia and Malaysia against broader regional and global trends, the focus will likely remain on how these markets navigate both domestic challenges and shifting international financial conditions.
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