EM Daily:Turkey,This is more than just a simple 25bps cut

　　Turkey (CBT): This is more than just a simple 25bps cut.

　　The Central Bank of Turkey (CBT) lowered its O/N lending and late liquidity widow lending rates by 25bps each to 8.75% and 10.25%, respectively in line with median market expectations. The Bank's main funding tool, one-week repo, and O/N deposit borrowing rate - lower band of rate corridor - were kept unchanged at 7.5% and 7.25%, respectively. We think yesterday’s cut revealed important clues about policy-making under new Governor Cetinkaya. While we already suspected about the Committee's over-focus on growth, today's move formally justified our assessment, probably at the expense of additional credibility loss as an inflation-targeter. The decision also insinuates that the Bank is likely to have a discretionary type of policy-making, shifting modes easily. Assuming global conditions remain favorable and domestic political risks are contained from here, we think the O/N lending will be reduced further to 8% in the coming months with a steady one-week repo at 7.5%. The switch to a single policy rate (at 7.5%) is also likely to take place by end-Q3. For details, see Data Flash - Turkey (CBT).

　　Brazil: eyes on the COPOM.

　　We expect the COPOM to keep the SELIC overnight interest rate target unchanged at 14.25%, which is also the market consensus. Despite the ongoing recession, inflation remains significantly above the target and a rate cut at this juncture would not be consistent with the hawkish stance embraced by newly-appointed BCB President Ilan Goldfajn. We expect the communiqué to repeat that current and expected inflation levels do not yet allow the central bank to ease monetary policy, in line with the Inflation Report published at the end of June. Apart from the BCB decision on rates, the good news is that from now on the second leg of the COPOM meeting on Wednesdays will begin earlier (at 2:30pm instead of after 4:00pm), so the announcement will not be published as late as it used to be (although it will still happen after markets close). Also see Brazil Update.

　　Asia’s frontier market: low beta.

　　Relatively unburdened by debt and aided by favorable demographics, rising incomes, expanding middle class, and aspiring entrepreneurs, frontier economies deserve serious attention from investors. This is particularly the case given strong headwinds to DM and EM growth in recent years, with no sign of the trend being reversed anytime soon. On a relative basis, frontier markets offer attractive risk-reward ratios, in our view. In our third annual report on Asia’s frontier economies, we take stock of the recent developments and outlook of Bangladesh, Cambodia, Lao P.D.R., Mongolia, Myanmar, Pakistan, Sri Lanka, and Vietnam. For details, see our special report included in July 2016 EM Monthly.