NBP extends pause, policy to stay loose for some time

The Polish central bank’s latest forecasts, published this afternoon, tell a story in which the economic recovery will strengthen over the coming years and inflationary pressures will pick up strongly. But we think that policymakers will tolerate higher inflation and maintain our view for interest rates to remain at 0.10% until 2023, which is a much more dovish view than most analysts and investors.
Liam Peach Emerging Markets Economist
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Emerging Europe Economics Update

NBP slows tightening, but steps up hawkish rhetoric

The National Bank of Poland’s decision to slow the pace of its tightening cycle with a 50bp interest rate hike (to 1.75%) seems a bit inconsistent with its more hawkish tone on inflation in the accompanying press statement. Even so, we think the backdrop of a prolonged period of above-target inflation will prompt the central bank to deliver a further 125bp of hikes, to 3.00%, in this cycle.

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BoI withdraws support, but no sign of tightening

Israel’s strong economic recovery prompted the central bank to phase out one of its emergency support programmes at today’s meeting and Governor Yaron’s comments suggest that the next step towards policy normalisation may involve the end of the bond purchase programme later this year. That said, interest rate hikes remain a distant prospect while inflation remains low.

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Russian ruble may hold onto some of this year’s gains

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In view of wider interest, we are sending this Emerging Europe Economics Update to clients of the FX Markets service as well.

2 July 2021

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Another strong batch of activity data for May suggest that Russia’s economy may have returned to just shy of its pre-pandemic level in Q2. The foundations are in place for the recovery to continue in Q3, but the latest virus wave and the possibility of a further tightening of containment measures pose a key threat.

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