CEE rate cuts coming into view, FX rally may not last

Central banks across Central and Eastern Europe provided firmer signs this week that, with inflation now declining, monetary loosening may soon be on the cards. But there are still clearly big concerns that inflation will be slow to fall back to central banks' targets, and we think that interest rates will be cut by less than most analysts expect over the next couple of years. Meanwhile, CEE currencies have been among the best performers in EMs this year and the Polish zloty hit a fresh nine-month high against the euro this week, but the think the rallies have now probably gone a bit too far. We expect CEE currencies to depreciate by 5% or so against the euro by year-end.