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The National Bank of Hungary’s revamp of its monetary policy framework announced today was characteristically complex. But the key point is that the Bank is paving the way for policy tightening and we expect interbank interest rates to increase over the …
18th September 2018
The much stronger-than-expected Turkish industrial production for July suggest that the boost to competitiveness from the fall in the lira in May and June has supported the sector. But these predate the acute phase of the sell-off and the dramatic …
17th September 2018
The aggressive interest rate hike in Turkey on Thursday has soothed the markets, but President Erdogan’s comments today reinforce our fears that he will put pressure on the central bank to reverse course. Meanwhile, comments from the Czech National Bank …
14th September 2018
The tone of the Russian central bank’s press conference suggests that today’s interest rate hike was a pre-emptive move against an expected tightening of US sanctions, not the start of a cycle. As things stand, we think it’s most likely that rates will be …
The aggressive interest rate hike delivered by Turkey’s central bank has soothed the markets, but the next thing to watch will be the reaction of President Erdogan. Any sign that he will try to reassert his influence over monetary policy decisions could …
13th September 2018
Polish inflation is lower, and has been slower to rise, than elsewhere in Central & Eastern Europe (CEE), which seems to be a result of having more slack in its labour market and faster productivity growth. Nonetheless, we think inflation is likely to …
The Turkish economy grew at a strong pace of 5.2% y/y in Q2 but the monthly activity data show that there was a loss of momentum towards the end of the quarter. More timely figures point to a steep recession at the start of Q3. … Turkey GDP (Q2 …
10th September 2018
Central banks in both Russia and Turkey created a stir this week by raising the prospect of rate hikes, but we think that the degree of tightening in Turkey will disappoint markets and policymakers in Russia will probably leave interest rates unchanged. …
7th September 2018
Turkey’s central bank has all but confirmed that it will raise interest rates at next week’s MPC meeting and an increase of 350-400bp seems to be the bare minimum that will be needed to soothe investors. But pressure from the government means we think …
6th September 2018
The rise in Russian inflation to 3.1% y/y in August, combined with Governor Nabiullina’s hawkish comments yesterday, will add fuel to expectations for an interest rate hike. But with underlying price pressures still extremely weak, we think that the …
5th September 2018
Turkish inflation jumped again in August, reaching 17.9% y/y, and it is likely to rise even further over the coming months. The central bank has just stated that the inflation figures will prompt a change to the monetary stance at September’s MPC meeting, …
3rd September 2018
Turkish CPI figures due on Monday are likely to show that inflation rose to its highest level since 2003, but government pressure means that this is unlikely to prompt the central bank to hike interest rates. Elsewhere, the Ukrainian hryvnia has come …
31st August 2018
The fresh sharp falls in the Turkish lira this week reflect growing concerns about the state of domestic policymaking and the health of the banking sector. Monetary tightening or an improvement in relations with the US could support a relief rally. For …
30th August 2018
Our weighted-average of the Economic Sentiment Indicators for Central and Eastern Europe (CEE) fell in August, adding to the evidence that GDP growth across the region has continued to weaken. … Economic Sentiment Indicators …
Russian President Vladimir Putin’s announcement yesterday that the government will soften a planned rise in the retirement age wasn’t altogether surprising, but it marks part of a broader slippage on recent fiscal reforms – including the new fiscal rule. …
The latest Turkish activity data suggest that the plunge in the lira since May, and the associated sharp tightening of financial conditions, has tipped the economy into recession. Things are only likely to get worse and our GDP growth forecasts lie well …
29th August 2018
The Russian ruble came under pressure this week as investors worried that US sanctions will be ramped up. For now, though, we don’t think that this will have a significant near-term impact on the economy. Elsewhere, the dovish stance taken by Hungary’s …
24th August 2018
Turkey plunged into a full-blown currency crisis this month following the imposition of US sanctions and an absence of (or refusal to pursue) an orthodox policy response. Inflation, which was already at a 15-year high, is likely to rise further, and the …
The strong batch of Polish activity data for July suggests that the economy continued to grow at around 5% y/y at the start of Q3. … Poland Activity Data …
22nd August 2018
Turkey’s economy has so far managed to come through the worst of the plunge in the lira without suffering acute financial stress. That said, the banking sector faces a large external debt repayment schedule over the next few months and in the spring of …
20th August 2018
Russian activity for July suggest that the economy continued to grow at a steady pace between Q2 and the start of Q3. Our Tracker is consistent with GDP growth of about 2.5% y/y and, while the Tracker overstated the pace of expansion in Q2, the national …
17th August 2018
The Turkish lira has recovered lost ground since Monday, although policymakers have only done the bare minimum in response to the crisis. There have been some positive noises on fiscal policy, yet there is no sign that the central bank will raise interest …
The plunge in the Turkish lira is likely to push inflation above 20% and tip the economy into recession in the coming months. Our base case is that GDP growth will now average 3.0% over 2018 as a whole (thanks to a strong first half of the year) and be …
15th August 2018
GDP data for Central and Eastern Europe showed that regional growth slowed for a third consecutive quarter in Q2. We expect that this slowdown will continue over the rest of 2018 and 2019. … Central & Eastern Europe GDP …
14th August 2018
Turkish policymakers have taken steps to support local banks today, but concerns have continued to mount about the health of the sector. Banks appear to hedge all their on-balance sheet FX mismatches so they’re not directly exposed to the lira’s collapse. …
13th August 2018
The collapse in the lira has raised concerns about the health of Turkey’s banking sector. Banks’ dollar bonds yields and interbank interest rates are already pointing towards some stress, and these will be key indicators to watch over the coming days and …
10th August 2018
The pick-up in Russian GDP growth, to 1.8% y/y in Q2, was a bit weaker than we had expected and there is now a downside risk to our growth forecast of 2.3% for the year as a whole. Even so, we think there’s a good chance that these data will be revised …
Turkey seems to have been on the brink of a crisis several times this decade, only for the central bank to do just enough to steady the ship. But there are reasons to think that emergency interest rate hikes during the current currency crisis might only …
GDP data out next week will probably show that GDP growth in Central and Eastern Europe slowed for a third straight quarter in Q2. We think that the slowdown will continue over the rest of 2018 and 2019. … CEE slowdown …
9th August 2018
The fact that the US sanctions (or the threat of) are having a bigger impact on financial markets in Turkey than Russia reflects the latter’s much stronger balance sheets as well as the credibility of its central bank. This should help to limit the …
The lesson from other countries that have suffered from currency crises is that fiscal and monetary policy will need to tighten, preferably under the auspices of an IMF deal, to stabilise the economy. However, it’s unclear that this is politically …
8th August 2018
The plunge in the lira and rise in borrowing costs is likely to push the Turkish economy into a technical recession in the second half of this year. But the vulnerabilities that have built up in the banking sector during the recent credit boom could turn …
The Turkish lira has recovered some of its losses in the past few hours, but the plunge in the currency over the past few weeks is now on a scale which has, in the past, prompted the central bank to hike interest rates aggressively. We were expecting …
7th August 2018
The small rise in Russian headline inflation, to 2.5% y/y, was driven by higher food inflation, while underlying price pressures still look very soft. We still think the central bank will lower interest rates over the next 12-18 months or so, whereas the …
6th August 2018
The US’s decision to impose sanctions on Turkey this week, as well as another bad inflation reading, has strengthened the case for further interest rate hikes. And there’s a growing risk of severe macroeconomic stress. Elsewhere, Hungary’s much-vaunted …
3rd August 2018
A bill presented in the US Senate yesterday has raised the threat of US sanctions on Russian sovereign debt. Were the bill to pass, we think it might plausibly add a premium of about 50-100bp to the yields of newly issued bonds. There could be a more …
The rise in Turkish inflation to a 15-year high of 15.8% y/y last month, coming alongside further lira weakness following the imposition of US sanctions, strengthens the case for interest rate hikes. While the central bank faces pressure from the …
The new forecasts accompanying today’s Czech MPC meeting – at which the policy interest rate was raised by 25bp – suggest that another hike is likely in November. In 2019, we think that interest rates will be raised by more than the central bank and …
2nd August 2018
The sanctions imposed by the US on two Turkish government ministers in themselves aren’t very big, but it looks likely that more measures will be announced. The lira is likely to fall further, strengthening the case for interest rate hikes. And given the …
July’s manufacturing PMIs suggest that the economies of Emerging Europe made a soft start to Q3. What’s more, the surveys provide evidence that price pressures are building across most of the region. … Manufacturing PMIs …
1st August 2018
The latest hard activity data from Turkey has been surprisingly robust, but more timely survey evidence and low-profile data suggest that a sharp slowdown is underway. Officials are reportedly preparing stimulus measures in a bid to prop up growth, but …
31st July 2018
The rise in inflation in most of Emerging Europe over the past month has caused central banks to adopt a more hawkish tone. Policymakers in Romania and the Czech Republic are likely to hike interest rates further in August, and Hungary’s central bank is …
30th July 2018
Our weighted-average of the Economic Sentiment Indicators for Central and Eastern Europe (CEE) dipped a little this month, but it still suggests that GDP growth across the region held up well at the start of Q3. … Economic Sentiment Indicators …
The Russian central bank’s post-meeting statement once again sounded hawkish on inflation risks. But it also implied that interest rates could be lowered in 2019, supporting our view that the easing cycle has further to run. In contrast, the markets …
27th July 2018
Signs this week that Russian President Vladimir Putin now opposes a planned rise in the retirement age suggest that the one significant policy reform announced in the country in the past three years may be scrapped, which could prevent a sizeable boost to …
We expect GDP growth across Emerging Europe to slow by more than most expect over 2019-20 and monetary policy is set to be tightened further than is priced into markets. The important exception to this regional story is Russia, whose recovery over the …
26th July 2018
Poland’s economy is set to expand at a robust pace over the remainder of 2018, but rising inflation and tighter monetary policy will cause the economy to slow by more than is widely anticipated in 2019 and 2020. What’s more, the country’s longer-term …
25th July 2018
President Erdogan’s growing influence over monetary policy leaves the public finances as the last remaining strong point of Turkey’s economy. But the budget position has deteriorated in recent years and, if anything, it looks like policy will be loosened …
The Hungarian MPC’s post-meeting communications reinforced the message that the MPC is inching towards a tightening cycle. For our part, we think inflation is likely to rise further than most think and, as a result, interest rates will ultimately be …
24th July 2018
The Turkish central bank’s decision to leave its one-week repo rate unchanged at 17.75%, when most had expected at least a 100bp hike, suggests that President Erdogan is already using his strengthened position to influence monetary policy. The lira has …
