SA, Chile and Mexico term premium estimates

Our estimate of the South African sovereign term premium has declined over the last three months, but remains elevated, both by historical standards and against other major emerging market sovereigns. A higher term premium has pushed up the South African government’s borrowing costs and implies that the neutral rate of the economy (reflecting where short-term interest rates are expected to settle in coming years once the effects of shocks have faded) has not declined meaningfully over this period. We previously showed that a higher term premium tends to be associated with increased economic slack and a weaker currency.

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