Hawkish CNB flags faster pace of monetary tightening

The Czech National Bank (CNB) raised its two-week repo rate by 25bp to 0.75% at today’s meeting, and its communications signalled that policymakers will raise rates more quickly than they had previously signalled to tackle above-target inflation. We expect that the policy rate will be hiked to 1.50% by end-2021, and 2.50% by end-2022 (previously 1.00% and 2.00%).
Nicholas Farr Assistant Economist
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Emerging Europe Economics Weekly

Lira crisis, MNB hikes, Ukraine-IMF, Romanian politics

This week has been dominated by the collapse in the Turkish lira and all our research on the crisis can be found here. While Turkey’s problems have been driven by a ‘head-in-the-sand’ approach to inflation and falls in the lira, Hungary’s central bank tightened policy further this week amid signs that officials across Central Europe are taking the inflation fight more seriously and becoming less tolerant of currency weakness. Elsewhere, the early signs are that a new grand coalition in Romania does not have the appetite for much-needed austerity. Finally, the latest tranche of IMF funds provide a welcome boost for Ukraine’s economy.
Drop-In: Why is Asia sitting out the global inflation surge? 09:00 GMT/17:00 HKT, Thursday 2nd December https://event.on24.com/wcc/r/3546145/A9D34EF592141BEFCAC819ADB40359D5?partnerref=report

26 November 2021

Emerging Europe Economics Update

Turkey: how strong is the fiscal picture?

Turkey’s public finances have become more vulnerable to falls in the currency in recent years, although we think the likelihood of sovereign default is very low. Perhaps the bigger risk for the public finances is that the pressure on the central bank to focus on growth is matched by a shift to a looser fiscal stance, causing the debt dynamics to worsen.

25 November 2021

Emerging Europe Economics Update

Macro fundamentals to support further shekel strength

The Israeli shekel has appreciated sharply in the past few weeks, making it one of the best performing currencies during the pandemic. While we don’t expect this recent strength to continue in the very near term, we think that Israel’s macro fundamentals will support further appreciation over the next few years. In view of the wider interest, we are also sending this Emerging Europe Update to clients of our FX Markets service.

24 November 2021

More from Nicholas Farr

Emerging Europe Economics Update

Is it time to worry about Romania’s current account?

The widening of Romania’s current account deficit to a 10-year high partly reflects a rise in foreign firms’ reinvested earnings which is not a concern. But the trade balance has also worsened and the share of the deficit financed by stable forms of capital inflows has fallen. This makes the leu vulnerable to a deterioration in investor sentiment, and presents an upside risk to our interest rate forecast.

3 August 2021

Emerging Europe Data Response

Manufacturing PMIs (July)

The PMIs for July suggest that supply chain disruptions weighed on output in Czechia and Poland and continued to put upward pressure on prices. Meanwhile, the releases suggest that manufacturing demand softened in Russia but strengthened in Turkey. The recent rise in new virus cases in the latter is a concern.

2 August 2021

Emerging Europe Data Response

Economic Sentiment Indicators (July)

The EC’s Economic Sentiment Indicators showed a surprising fall in regional sentiment in July, but we suspect that this was a blip rather than the start of a trend. We still expect growth to be strong in Q3, although evidence of growing price pressures in the survey suggests inflation pressures will remain high.

29 July 2021
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