Tensions between Israel and Iran ratcheted up this week, although there's at least hope that both sides are now trying to avoid any further escalation. For Israel’s economy, the pressing issue is the sustainability of the large budget deficit due to the ongoing war in Gaza. Elsewhere, the sell-off in EM financial markets this week supports our calls for a smaller interest rate cut in Hungary and a rate hike in Turkey at their central bank meetings next week. In Poland, though, long-awaited utility price regulations announced this week mean that inflation is likely to be a bit lower this year than we previously expected, which could open up the door for a rate cut before year-end.
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