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Turmoil in Turkey, MNB delivers, COVID divergence

It's been a turbulent week for Turkey, with the lira falling by around 11% against the dollar and we've looked extensively at the key implications for the economy and financial system. We'll be hosting a drop-in session on Tuesday to answer any key questions. (Sign up here.) Meanwhile, Hungary's central bank stepped up to the plate with a 70bp hike to its one-week deposit rate this week and further large increases are likely to push interest rates to 4% next year. Finally, there are some encouraging signs that new COVID-19 cases are starting to fall in parts of Eastern Europe, but cases have surged in Central Europe and tightening virus restrictions will sap recoveries of momentum.
Liam Peach Emerging Markets Economist
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Emerging Europe Data Response

Russia Consumer Prices (Jul.)

Russia’s month-on-month deflation deepened in July as consumer prices fell by a larger-than-expected 0.4% m/m (in y/y terms, the headline rate eased to 15.1%). The disinflationary impact of the strong ruble is likely to fade but with consumer demand so weak we think the headline inflation rate will fall towards 12% y/y by year-end. We think this will prompt a further 100bp of rate cuts, to 7.00%, later this year. Emerging Europe Drop-In (11th Aug): We’re expecting downturns in Central and Eastern Europe, but how bad could it get? Join this 20-minute briefing on our Q3 Outlook report, including the latest on Turkey, Russia and whether Hungary’s forint has further to fall. Register now.

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Emerging Europe Economics Update

EU & the rule of law dispute: why do EU funds matter?

EU funds will provide a key boost to economies in Central and Eastern Europe in the coming years as the region navigates a challenging macro environment and slowing global growth. Disputes with the European Commission over the rule of law in Hungary and Poland look close to being resolved, but the risk of funds being halted indefinitely remains high and would weigh heavily on growth in both countries. Emerging Europe Drop-In (11th Aug): We’re expecting downturns in Central and Eastern Europe, but how bad could it get? Join this 20-minute briefing on our Q3 Outlook report, including the latest on Turkey, Russia and whether Hungary’s forint has further to fall. Register now.

10 August 2022

Emerging Europe Economics Weekly

Rate hikes nearing an end, CBR’s reform ambitions

The Czech central bank’s decision to keep its policy rate on hold this week, while Romania’s hiked rates, is representative of a growing divergence between central banks in the region. We think Poland’s central bank will be the next to end its tightening cycle, while those in Romania and Hungary will remain hawkish for a few months yet. Elsewhere, Russia’s central bank set out a number of potential measures intended to help the financial system, which show that policymakers are seeking to live with Western sanctions for the long haul.
Emerging Europe Drop-In (11th Aug): We’re expecting downturns in Central and Eastern Europe, but how bad could it get? Join this 20-minute briefing on our Q3 Outlook report, including the latest on Turkey, Russia and whether Hungary’s forint has further to fall. Register now.

5 August 2022

More from Liam Peach

Emerging Europe Economics Update

Lira sell-off and lessons from other “sudden stops”

The fresh falls in the Turkish lira following the CBRT’s interest rate cut today have left Turkey firmly in crisis territory and echoes of previous “sudden stops” during major EM currency crises in the past are growing louder. Without an aggressive policy response, there is a real risk of large and destabilising falls in the lira of more than 10%, with the currency bursting through 13/$ in the coming days. In view of the wider interest, we are also sending this Emerging Europe Update to clients of our FX Markets service.

18 November 2021

Emerging Europe Data Response

Russia GDP (Q3 2021)

The softer-than-expected 4.3% y/y expansion in Russia’s GDP in Q3 suggests that the recovery lost momentum during the summer and, with the severe virus outbreak likely to take its toll on domestic activity, the economy is likely to slow further in Q4 and into 2022.

17 November 2021

Emerging Europe Economics Update

MNB drops a bombshell as it pledges faster tightening

Investors were initially disappointed following the decision by Hungary’s central bank (MNB) to raise its base rate by only 30bp (to 2.10%) today, but the hawkish post-meeting communications and a pledge to step up the pace of tightening by using other policy tools have supported a marked appreciation of the forint. We now expect short-term interest rates will rise towards 4.0% next year.

16 November 2021
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