Jan 31 (Reuters) – Emerging market stocks rose on Monday after their worst week since August, while developing country currencies firmed ahead of key central bank meetings after a staunchly belligerent U.S. Federal Reserve hammered risk assets last week.

The Bank of England is expected to raise the key rate by 25 basis points this week to combat soaring inflation, while the European Central Bank is expected to hold the rate, sticking to its transitory inflation argument.

The accommodative positions of the main central banks had favored inflows into riskier assets during the crisis of the coronavirus pandemic. Higher rates pose a threat, especially to emerging economies that have lagged in tightening monetary policy, such as Turkey.

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Weak manufacturing growth in China in January also caused problems for emerging economies dependent on Chinese demand. A further decline in Chinese exports could put pressure on the yuan, Commerzbank analysts said. Read more

With the Lunar New Year holiday reducing volumes in Asia, the MSCI Emerging Markets Equity Index (.MSCIEF) rose 0.9%, but was expected to end the month down around 2.5%. Its currency counterpart (.MIEM00000CUS) edged higher while the dollar (.DXY) retreated slightly from multi-year highs hit last week.

Turkey’s beleaguered lira rose 1.4% despite concern over political interference in politics. President Tayyip Erdogan replaced the head of the country’s statistics institute ahead of inflation data due on Thursday, which is expected to show consumer prices jumped 47% a year in January – the highest in nearly 20 years old. Read more

This was fueled by a fall in the lira thanks to an unorthodox monetary policy that saw the country’s benchmark rate cut to 14%. The central bank is due to meet later this month and Erdogan repeated that interest rates would be lowered further. Read more

“The (Turkstat) change will fuel suspicions that President Erdoğan is once again interfering with the independence of an institution,” said Ulrich Leuchtmann, head of currency and commodities research at Commerzbank.

“If the market no longer believes (the data), it will wonder if further nominal (exchange rate) depreciation is warranted.”

The Russian ruble jumped 1%. U.S. senators are close to reaching an agreement on legislation sanctioning Russia for its actions against Ukraine, including some measures that could take effect before any invasion, two leading senators said on Sunday. Moscow denies any invasion plan. Read more

Citigroup strategists said that according to their models, in the absence of geopolitical risk, the ruble should have been at 66 to the dollar. The currency was last at 77.29, after rising above 80 last week.

For a CHART on the performance of emerging markets in 2021, see http://tmsnrt.rs/2egbfVh

For the GRAPH on the performance of the MSCI emerging index in 2021, see https://tmsnrt.rs/2OusNdX

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Reporting by Susan Mathew in Bengaluru; Editing by Alison Williams

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