Guidance from Hungary's central bank this week suggests that it is taking the fight against inflation much more seriously and we now think that a monetary tightening cycle will start over the coming months. This should support the forint, but there are question marks about whether there is appetite at the central bank to move away from deeply negative real interest rates. Meanwhile, Turkey's budget balance has improved significantly in recent months, largely thanks to strong tax collection and spending restraint. But if the central bank struggles to lower interest rates, we suspect that fiscal loosening will be back on the cards.
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