The surprise interest rate cut by Turkey's central bank this week, despite inflation reaching close to 80% y/y in July, threatens to sow the seeds of the next currency crisis. The banking sector remains the weak link and policymakers may turn towards more restrictive capital controls. Elsewhere, economies across Central and Eastern Europe expanded strongly in Q2 despite the spillovers from the war in Ukraine but the 2.3% q/q contraction in GDP in Poland caught everyone by surprise. While we don't think this is the start of a deep and broad-based recession, the economy is set for a period of stagnation later this year.
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