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5 Feb 2015
Impact on EM FX as a result of current account changes due to falling oil – BAML
FXStreet (Barcelona) - Sebastián Rondeau, Global EM and Latin America FI/FX strategist at BofA-Merrill Lynch, expects a project 50% drop in oil prices for 2015 vs 2014, might lead real exchange rates to appreciate by 8% for Turkey and India, and 6% for South Africa, while Russia would likely see a depreciation of 26%.
Key Quotes
“We expect that the drop in oil prices will generate an improvement in the current account balance of most EM economies.”
“In fact, the larger EMs are net oil importers (e.g., China, India, Korea, Turkey,).”
“Excluding major oil exporters such as GCC, Russia and Colombia, the 50% drop in the average oil price expected for 2015 vs 2014 should lead to an average increase in the typical EM current account balance equivalent to 1.5% of GDP.”
“According to our Compass FX model, this should result in an average long-term fair value appreciation of close to 5% in multilateral terms. Some of the countries most affected by such a positive terms-of-trade shock are Turkey, India, and South Africa, which would see fair value real exchange rates appreciating by 8%, 8% and 6%, respectively.”
“On the flipside, Russia’s fair value real exchange rate would depreciate 26%.”
Key Quotes
“We expect that the drop in oil prices will generate an improvement in the current account balance of most EM economies.”
“In fact, the larger EMs are net oil importers (e.g., China, India, Korea, Turkey,).”
“Excluding major oil exporters such as GCC, Russia and Colombia, the 50% drop in the average oil price expected for 2015 vs 2014 should lead to an average increase in the typical EM current account balance equivalent to 1.5% of GDP.”
“According to our Compass FX model, this should result in an average long-term fair value appreciation of close to 5% in multilateral terms. Some of the countries most affected by such a positive terms-of-trade shock are Turkey, India, and South Africa, which would see fair value real exchange rates appreciating by 8%, 8% and 6%, respectively.”
“On the flipside, Russia’s fair value real exchange rate would depreciate 26%.”