EU budget problems, CBRT delivers tightening

The decisions by Poland and Hungary this week to veto the EU budget and recovery fund brought to a head a conflict about the rule of law that threatens to suspend EU funds. There's a lot at stake, including EU funds worth 16% of GDP or so over the next seven years for each country as well as question marks about the future relationship with the EU. Meanwhile, Turkey's central bank stepped up to plate this week by assuring investors that a shift towards more orthodox policymaking is truly underway. Local markets may have further to rally over the coming months but we are still sceptical that this shift in policymaking will stick.
Liam Peach Emerging Markets Economist
Continue reading

More from Emerging Europe

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

More from Liam Peach

Emerging Europe Economics Update

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.

5 July 2021

Emerging Europe Economics Update

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

The Russian ruble appreciated to a one-year high against the dollar recently but we think the rally will fade as oil prices fall back and US Treasury yields rise further. That said, the central bank’s determination to rein in inflation should keep Russian bond yields high and provide the ruble with more protection in this global environment. We now expect the ruble to end next year at 76/$ (previously 80/$).

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

Emerging Europe Economics Update

Russia: a strong recovery in Q2, but risks ahead

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.

1 July 2021
↑ Back to top