Monetary tightening comes into focus

Emerging Europe has been one of the few parts of the emerging world where attention has centred on monetary tightening (rather than loosening) in the past month. A rise in core inflation to multi-year highs has prompted talk of rate hikes in Poland, Hungary and Romania. And Turkey’s central bank tightened conditions (temporarily) this month in response to pressure on the lira. For our part, we expect more hikes than the markets in both Hungary and Romania over the coming quarters. Russia is the key exception to this story – inflation has been weaker than anticipated by the central bank and the next move in rates will be down. With policymakers adopting a more dovish stance, a rate cut will probably be delivered in June.