The Russian central bank caused a surprise earlier this month by hiking its one-week repo rate in a pre-emptive move to limit capital outflows ahead of a fresh sanctions imposed by the US and EU. This decision stood in stark contrast to the rest of the region, where policymakers have struck a more dovish note. The National Bank of Hungary lowered its benchmark rate by more-than expected this month. And the recent weakness of inflation has triggered talk of looser policy in Poland. Unless the next batch of activity data improves, we think the Polish MPC is likely to cut rates at its next meeting in September. Finally, the Turkish MPC also cut interest rates this month. But while we expect monetary policy to remain loose in Central Europe, Turkey’s large external financing requirement and high rate of inflation cast doubts on the sustainability of the easing cycle.
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