Vivek Mishra and Vuyani Nadaba

JOHANNESBURG/BENGALURU (Reuters) – The shift in global inflation expectations from transitory to sticky will spare emerging market currencies a sell-off in the next few months as central banks consider or deliver near-term interest rate hikes, a Reuters poll of strategists found.

Many emerging market currencies, such as the South African rand or Russian ruble, are still under severe pressure. However, they will be likely to see an increase in their final quarter of 2021.

The U.S. Federal Reserve is expected to gradually reduce its $120 billion per month bond purchasing programme. This has already sent U.S. bond yields higher and the dollar higher ahead of an eventual rate increase late next year.

Jonny Goulden is an emerging market strategist at JPMorgan (NYSE). He stated, “The persistence of EM inflation is forcing a reaction by central banks. And while nominal carry EMFX is increasing, real interest rates struggle to enter positive territory.”

The Reuters poll of Oct. 1-6 found that the South African rand (and the Mexican peso) were likely to strengthen by 3% over six months, to 14.90/$ and 20.252/$ respectively. Meanwhile, the Russian rouble is expected to rise more than 2% to 71.52/$.

The fact that central banks have raised rates has contributed to relative stability of other emerging market currencies, even though the U.S. Dollar remains strong.

In a client note, Ian Tomb (NYSE:), emerging markets economist at Goldman Sachs wrote that EM macro fundamentals were generally stronger – particularly the ex-ante buffer for real rates which has been built on a wide basis after the rate increases across EM over the past six months.”

Many EM exporters still benefit from the strong commodity price tailwinds despite a slower China. He wrote that local markets in EM had not experienced the capital inflows seen in the run up to the taper scandal.” This refers to when the Fed last cut its asset acquisition programme.

Reuters poll graphic on the outlook for , , and : https://fingfx.thomsonreuters.com/gfx/polling/lbvgngqnjpq/EM%20FX%20graphic.PNG

China’s Yuan was among the few currencies to finish strong in subsequent quarters after this episode. The rand lost nine quarters in succession, and other emerging markets currencies were weaker.

China’s authorities have been heavily managing the yuan. It fell to a one week low last week.

It is expected to trade fairly steady over the next 12 months, despite greater concerns about the economy’s reliance on property. China Evergrande Group, a giant developer of China Evergrande Group, has more than $300 billion in debt and will be facing one of the largest ever debt restructurings in the country.

As part of an aggressive push to reduce speculation, officials are increasing their control of China’s currency markets. They press banks to trade in smaller amounts and less frequently.

This suggests that further interventions could be possible.

Michael Every from Rabobank, the global strategist for Rabobank said “CNY keeps shrugging all of that off.” It is more of an economic bellwether than it is a macroeconomic and financial signal: The message being sent is one that defies all odds, not one that reflects an economy struggling with an uncertain direction or an energy crisis.

It may not be a bad idea for other currencies to float easily, but they might just fall by twice as much this year.

After a 16% plunge in the Turkish lira last year, and a 20% decline in 2020, it is now the most susceptible of the five top currencies to sell off. The Brazilian real, Indonesian rupee, Thai Baht, Philippine peso, and the Indonesian rupiah are the next three.

It is predicted that the battered Lira will drop almost 5% and reach 9.250/$ within six months. The central bank of the country has cut interest rates to defy global trends.

(For more stories about the October Reuters foreign currency poll, click here