Emerging Europe

Emerging Europe Economics Update

Emerging Europe Economics Update

Baltic States brush off pandemic’s economic hit

GDP in the Baltic States has already surpassed pre-pandemic levels and we expect this strength to be sustained, with growth outpacing Central Europe and the euro-zone as a whole over the coming years. This strong recovery will use up spare capacity fairly quickly and fuel higher inflation. The main risk is that these economies overheat, causing macro imbalances to build.

18 October 2021

Emerging Europe Economics Update

BoI ends asset purchases, rate hike now likely in 2022

The Bank of Israel revised up its forecast for GDP growth at today’s meeting and struck a more hawkish tone on inflation as it announced that it will end its asset purchase programme later this year. This was in line with expectations, but Governor Yaron also suggested a possibility of an interest rate hike in 2022 and we now think that a 15bp rate hike will be delivered in the second half of next year.

7 October 2021

Emerging Europe Economics Update

NBP catches everyone off guard with a surprise hike

The National Bank of Poland (NBP) unexpectedly hiked its policy rate by 40bp to 0.50% at today’s MPC meeting, but the accompanying communications were underwhelming and suggest that the rate hike was not as hawkish a move as might have been first interpreted. We expect the policy rate to reach 2.00% next year, but there is a lot of uncertainty about where the dovish members on the MPC currently stand.

6 October 2021
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Emerging Europe Economics Update

NBR hikes interest rates, further tightening to follow

The National Bank of Romania (NBR) raised its policy rate by 25bp to 1.50% at today’s meeting, and the backdrop of rising inflation, large twin deficits and currency weakness means that further rate hikes are likely to be delivered over the next 12 months. We expect the policy rate to reach 2.75% by mid-2022.

Emerging Europe Economics Update

Hawkish CNB accelerates its tightening cycle

The Czech National Bank (CNB) stepped up the pace of its tightening cycle with a 75bp interest rate hike, to 1.50%, at today’s meeting and its hawkish communications signalled that further aggressive hikes will be delivered in the coming months to tackle inflation. We now think that interest rates will rise to 3.25% in this cycle (previously 2.75%).

Emerging Europe Economics Update

Turkey’s external position still in dire straits

Last week’s surprise interest rate cut by Turkey’s central bank is particularly worrying given the backdrop of the country’s fragile external position. While the current account deficit has narrowed and the central bank’s net FX reserves have increased this year, large short-term external debts leave the lira vulnerable to sharp falls in the event that further aggressive monetary easing triggers a slowdown in capital inflows.

27 September 2021

Emerging Europe Economics Update

Turkey: Erdogan gets his way with surprise rate cut

Turkey’s central bank (CBRT) unexpectedly cut its one-week repo rate by 100bp to 18.00% today, despite the further rise in inflation in August, and we now think that further aggressive easing is likely over the coming year. But this could ultimately sow the seeds for the next balance of payments crisis.

Emerging Europe Economics Update

MNB to stick with slower pace of tightening

Hungary’s central bank (MNB) slowed the pace of its tightening cycle today, raising its base rate by a smaller-than-expected 15bp to 1.65%, and the post-meeting communications signalled that future rate hikes will remain at the smaller end of the spectrum. We have tweaked our interest rate forecasts and now expect the base rate to rise to 2.10% by the end of this year (previously 2.20%).

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