Yellen’s first currency report to be released soon, Russia cut 2021 borrowing plan due to US sanctions, and Turkey held rate constant under the new governor

• Yellen’s first currency report may label multiple US trade partners as currency manipulators
• Russia to cut 2021 borrowing plan due to US sanctions
• Turkey holds rates in the first meeting under the new central bank governor

US Treasury Janet Yellen is expected to release its first foreign exchange report this week, and multiple trade partners including Taiwan and Thailand risk joining Vietnam and Switzerland to be labeled as currency manipulators. Trading partners are labeled manipulators if they meet specific criteria: more than $20 billion bilateral trade surplus with the US, FX intervention exceeding 2% of GDP and a global account surplus exceeding 2% of GDP. This practice has been aggressively implemented under the Trump administration, leading to the labels on Vietnam and Switzerland. However, whether or not Yellen would follow such strict practice remains unclear. The US law requires the Treasury to seek negotiations with labeled manipulators to limit their currency intervention, including denying them access to the US government procurement contracts.

Russia will cut its 2021 state borrowing plan more than expected amid US sanctions. The US has imposed a wide array of anti-Russian sanctions, including banning US investors from purchasing newly issued Russian bonds. As a consequence, the Russian finance ministry commented yesterday that it would cut the borrowing plan by 875 billion rubles (~$11.45 billion). The central bank has also commented that it would resort to tools to preserve financial stability if needed to prevent sellout on the bonds among foreign investors. The next meeting on rates decision will be held on April 23 to determine whether or not to raise the rates. In the initial reaction, the ruble fell 2.2% to RUB77.5 to the dollar, before recovering to RUB76.9 by midday. The currency has also been on a roller-coaster ride in recent weeks.

Turkey’s new central bank governor has conducted its first monetary policy meeting and has left the interest rate unchanged at 19%, in line with market expectations. Lira extended gains shortly after the decision. The newly appointed governor Sahap Kavcioglu was under pressure to lower the rates, but so far he has signaled that he would not rush to do so. Back in March, Turkey raised its benchmark interest rate by 2% under the former governor Naci Agbal, doubling the market consensus. The move was to save lira from falling further and it did have some effect on lifting up the demand. However, with the abrupt firing of Naci Agbal, lira plummeted sharply. Now that with accelerated inflation in March, the new governor may have little room to enact interest rate cuts.