Tightening cycles still have some way to go

Inflation has continued to beat expectations across Emerging Europe over the past month, reaching rates not seen in decades in most countries. It is now weighing more heavily on consumer confidence, and the surprise inflation releases for May prompted central banks to accelerate tightening cycles in a number of economies, including Czechia (125bp hike) and Hungary (185bp). Such large hikes are unlikely to be repeated but, with inflation not set to peak for at least a few more months, tightening cycles still have some way to go. The exceptions are Russia and Turkey. Falling inflation will give Russia’s central bank scope to cut its policy rate further and President Erdogan’s grip on Turkey’s central bank means that rate hikes to combat inflation of more than 70% y/y remain off the cards.