Rate hikes to take some heat out of growth and inflation

The sharp tightening of monetary policy in the region will strengthen the preference for savings, dampen lending growth and raise debt servicing costs next year. It is plausible to think that higher interest rates could trim 0.5-0.8%-pts off GDP growth and 0.8-1.0%-pts off inflation in Central Europe in 2022-23.
Liam Peach Emerging Markets Economist
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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.

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Emerging Europe Data Response

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Israel passed a budget, hawks in flight, Turkey déjà vu

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The National Bank of Poland’s (NBP) decision to raise its policy rate by a larger-than-expected 75bp to 1.25% alongside the upwards revision to its inflation forecast suggests to us that the NBP is taking the fight against inflation much more seriously than we had thought. With a prolonged period of above-target inflation a serious risk, we now think rates will rise to 2.75% in this cycle (vs. 1.50% previously). Note: We’re holding a Drop-In on the outlook for Frontier Markets on Thursday at 14:00 GMT. Registration details here.

3 November 2021
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