MNB steps up front-loaded tightening cycle

The larger-than-expected 30bp interest rate hike by Hungary’s central bank (MNB) today was accompanied by hawkish comments that send a strong message about its intention to bring inflation back to its target. The tightening cycle is likely to be sharper than we had expected, with the base rate rising from 1.20% now to 2.20% in this cycle (versus our previous forecast of 1.70% by early 2022).
Liam Peach Emerging Markets Economist
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Emerging Europe Economics Weekly

Omicron & tightening cycles, Turkey into the unknown

While a lot is still unknown about the Omicron variant, we don’t think it will prevent central banks from delivering further large interest rate hikes - Poland will be a case in point next week, where we expect a 75bp rate hike. The key exception is Turkey, where the departure of Finance Minister Elvan this week adds to signs that policymakers are not prepared to respond to the recent falls in the lira with an orthodox approach. The currency will remain under pressure and this week’s interventions in the FX market suggest policymakers’ tolerance of a weak lira is being tested. These interventions cannot be sustained and soft capital control may be the next port of call.

3 December 2021

Emerging Europe Economics Update

Turkey & the macro fallout from past “sudden stops”

The history books show that currency crises in other parts of the emerging world in recent decades have resulted in peak-to-trough falls in GDP of around 8% on average and pushed headline inflation up by 25%-pts from its latest trough. The latest crisis in Turkey is likely to result in a downturn that sits towards the milder end of the spectrum and, so long as the lira stabilises, the peak in inflation is likely to be in the region of 25-30% y/y in the next few months.

3 December 2021

Emerging Europe Data Response

Turkey Consumer Prices (Nov.)

The rise in Turkey’s headline inflation rate to 21.3% y/y in November will almost certainly be followed by further chunky increases over the coming months that take it to 25-30% as the effects of the recent currency crises continue to filter through. With no sign that President Erdogan will permit an orthodox policy response in the form of large interest rate hikes, the lira will struggle to recoup its losses and inflation will remain at these very high levels throughout much of the next six-to-nine months.

3 December 2021

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Emerging Europe Economics Update

CBR hikes rates sharply, but cycle nearing an end

Russia’s central bank (CBR) opted for a larger 100bp interest rate hike, to 6.50%, at today’s meeting and the accompanying communications provided clear guidance that the tightening cycle is nearing an end. With inflation likely to rise further and inflation expectations to remain elevated, we think that there will be a further 75bp of interest rate hikes, to 7.25%, at the next two meetings in September and October.

23 July 2021

Emerging Europe Economics Update

Israel and the Delta variant: what we know so far

A rise in virus cases in Israel has prompted the government to re-impose restrictions on activity, including mask mandates and vaccine certification for large events. There are signs that the Pfizer vaccine may be much less effective at preventing infection against the Delta variant and that vaccine efficacy fades over time, prompting the introduction of booster jabs. So far there is little evidence to suggest that the vaccine is much less effective at preventing severe illness. While the re-opening of international tourism is likely to be delayed, restrictions on the domestic economy look set to remain light-touch.

23 July 2021

Emerging Europe Data Response

Poland Activity Data (Jun.)

Polish industrial production and retail sales figures for June suggest that the rebound in economic activity softened a touch at the end of Q2, but GDP still looks to have expanded by 2.0% q/q in Q2. We think the recovery will maintain a solid pace in Q3 as activity in consumer-facing services sectors rebounds.

21 July 2021
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