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Today’s decision by the Central Bank of Turkey (CBRT) to cut its overnight lending rate – which forms the upper bound of its “interest rate corridor” – is a largely symbolic move that is most likely aimed at placating government ministers that have …
18th October 2012
The latest monthly activity data suggest that the Russian economy is now in the midst of a fairly sharp slowdown. We reckon that GDP growth slowed to around 2% y/y in Q3, from 4% y/y in Q2, and that worse is to come in Q4. This should temper expectations …
17th October 2012
The hikes in indirect taxes announced by the Turkish government over the past few weeks will not prevent inflation from falling further towards the end of this year. But even so, current account concerns mean that there is little room for monetary policy …
16th October 2012
A surge in gold sales to crisis-hit Iran has played a significant role in reducing Turkey’s current account deficit over the past year. However, gold sales alone are unlikely to bring Turkey’s external deficit down to a sustainable level, and we continue …
15th October 2012
The latest data suggest that parent banks in Western Europe have continued to scale back funding to subsidiaries in the east, with those in Hungary hit disproportionally hard. … Parent bank deleveraging rumbles …
12th October 2012
Russia stands out as the only economy in Emerging Europe currently experiencing rapid credit growth. In fact, the Central Bank is starting to worry about the risks of a credit bubble developing. We share some of its concerns but think that mounting …
10th October 2012
The raft of amendments to Hungary’s 2013 budget announced late last week contained not only fresh austerity measures, but also amended contentious policies that had previously been an obstacle to an IMF deal. As such, it has received cautious approval …
9th October 2012
The decision by the Central Bank of Russia to keep interests rates on hold at 8.25% was expected, but the accompanying statement revealed a subtle yet important shift in tone, with policymakers now placing more emphasis on downside risks to growth and …
5th October 2012
The forecast by the Central Bank of Russia that the economy will run a current account deficit by 2015 is significant insofar as it represents the first official acknowledgment of something we’ve been arguing for a while – namely that Russia’s oil-fuelled …
4th October 2012
The decision by the National Bank of Poland to leave interest rates on hold today suggests that policymakers want to see further evidence of a slowdown in the economy before easing policy. We doubt they will have to wait for very long, and continue to …
3rd October 2012
The pick-up in the manufacturing PMI for Russia and Turkey last month is good news, although the survey still suggests that industrial production in both countries stagnated in quarterly terms in Q3. That would, however, be a markedly better outcome than …
1st October 2012
Central banks in Emerging Europe are starting to respond to the economic downturn that has spread across the region. Interest rates were cut this month in the Czech Republic, Hungary and Turkey, and policymakers in Poland looks set to follow suit over the …
28th September 2012
The Czech National Bank cut interest rates to just 0.25% earlier today and suggested that, should further stimulus be necessary, this would probably take the form of intervention in the foreign exchange markets to weaken the koruna. We don’t expect an …
27th September 2012
Hungary cut interest rates again today, but a combination of familiar financial vulnerabilities and a failure to make meaningful progress on an IMF deal means that the room for further significant cuts to support growth is limited. By contrast, Polish …
25th September 2012
The Czech National Bank is likely to cut interest rates to a fresh record low later this week. But it is quickly running out of room for conventional policy responses to lift the economy out of recession. And with activity set to remain subdued on the …
The Russian authorities have raised the prospect of export bans on grains to contain local food inflation. But past experience suggests that such moves have had little impact on domestic prices, and in any case a repeat is unlikely to prevent inflation …
24th September 2012
Financial markets are unlikely to be spooked by signs of fiscal slippage in Poland – compared with the rest of Europe, the government’s finances are a picture of health. In fact, we think bond yields are likely to fall further over the next six months or …
20th September 2012
August’s raft of activity data confirm that the Russian economy is running out of steam – in the first two months of Q3 growth appears to have slowed to its weakest pace in two years. With limited room for a fiscal boost following a pre-election spending …
19th September 2012
The recent news that the ECB is prepared to buy “unlimited” quantities of peripheral government bonds has reduced the risk that banks in Emerging Europe will be hit by financial contagion from the eurozone. But familiar vulnerabilities in the region’s …
Today’s cut in the Turkish overnight lending rate is partly cosmetic and the impact on domestic demand is likely to be limited. We wouldn’t rule out a few more steps to narrow the “interest rate corridor” over the coming months, but ultimately high …
18th September 2012
The surprise decision this afternoon by the Central Bank of Russia (CBR) to hike interest rates reflects growing concerns over rising inflation among policymakers. Another hike in rates is possible by the end of the year, but we think the Bank could be …
13th September 2012
Although Turkey’s current account deficit has started to narrow, short-term external debt – particularly in the banking sector – has risen sharply over the past couple of years. As such, Turkey remains among the most vulnerable emerging markets to a fresh …
12th September 2012
The recent revision of Russia’s tariff system as part of its WTO accession is unlikely to have a marked impact on inflation, which is still on course to breach the Central Bank’s end-year target of 5-6%. … WTO tariff reductions will have little impact on …
11th September 2012
Q2 GDP data showed that while domestic demand is still contracting, a boom in exports has kept the Turkish economy out of recession. Admittedly, it looks like the economy has weakened in Q3, while concerns about a large external financing requirement …
10th September 2012
Final Q2 GDP data confirmed that weak domestic demand was the main drag on growth in Central and South Eastern, coming on the back of fiscal austerity and falling confidence. But with external headwinds mounting, we think growth is set to slow further …
7th September 2012
Today’s statement by Hungarian PM Victor Orban that his government will reject the conditions attached to an IMF programme is unlikely to spell the end of negotiations between the two parties, but it is likely to result in a sell-off in the forint and …
6th September 2012
Policymakers in Russia are likely to find themselves in something of a bind over the coming months – while growth is starting to slow, inflation looks set to accelerate. For now it seems that inflation concerns will dominate the debate, and we would not …
Today’s post-MPC press conference gave the clearest sign yet that the National Bank of Poland (NBP) is set to start cutting interest rates in order to counter the recent downturn in the economy. We now expect a 25bp cut in rates at next month’s MPC …
5th September 2012
While manufacturing in Emerging Europe does not seem to have collapsed to the same extent as in Western Europe, August’s PMIs remain at levels consistent with a recession in industry in Poland and the Czech Republic and strengthen the case for policy …
3rd September 2012
A raft of GDP data released this month showed that growth slowed across most of Emerging Europe in the second quarter. Hungary and the Czech Republic were the worst performing economies, as both sank further into recession. And even the region’s most …
30th August 2012
Poland remains one of Emerging Europe’s strongest performing economies. But a sharper-than-expected slowdown in Q2 means that it is looking likely that the National Bank will cut interest rates by more than most analysts anticipate over the coming 12 …
In the past few months, the Turkish central bank has added to its policy toolkit by allowing banks to hold foreign currencies and gold in place of lira as required reserves for their lira liabilities. In this Update, we examine the reasons behind this …
29th August 2012
The National Bank of Hungary’s surprise decision to cut interest rates today suggests that further easing could be on the way. But unless and until an IMF/EU deal is agreed, anything more than a further one or two 25bp cuts looks unlikely. … Hungary cuts …
28th August 2012
The slowdown in Emerging Europe in recent months is a sign of things to come, and we expect a number of countries to spend the next year in recession. The most obvious concern on the horizon remains the rolling crisis in the euro-zone, which, despite …
23rd August 2012
July’s activity data, released earlier today, suggest that the Russian economy slowed further at the start of Q3 and may now be growing at around 3% y/y – down from rates of close to 5% in the first quarter of this year. More importantly, there are signs …
20th August 2012
The ruble has been on a rollercoaster ride of late, falling by 10% against its dollar/euro basket in May, before clawing back around 5% of its losses over the past few weeks. If nothing else, this underlines the extent to which the currency has become far …
17th August 2012
The pick-up in food inflation in Emerging Europe is likely to raise fears that the recent spike in global agricultural prices is starting to hit the region. There is a fair amount of uncertainty, but assuming that food prices don’t rise from here on, food …
14th August 2012
Today’s Q2 GDP data paint a picture of weakening growth, with Hungary joining the Czech Republic in recession. For now, the drop in output in both countries seems to have been driven as much by domestic austerity as by weaker export demand from Europe. …
The National Bank of Romania (NBR) appears to have stepped up intervention in the FX market to defend the leu following the recent bout of political turmoil. For now, FX reserve coverage looks adequate and the NBR can probably continue to intervene at its …
13th August 2012
Q2’s GDP data provide the first sign that the impressive bounce in growth in the Baltic States is coming to an end. Growth decelerated in Latvia and slowed to a crawl in Lithuania and Estonia. A weaker external environment, coupled with still fragile …
10th August 2012
The slowdown in Russian GDP growth in Q2, though modest, is likely to be a sign of things to come. Accordingly, speculation that the Central Bank may soon hike interest rates seems premature. … Russian bank turns hawkish despite slowdown in …
Emerging European bonds have rallied over the past couple of months. In the case of Hungary and Turkey we are doubtful that it can be sustained, but in the Czech Republic and Poland, it may have further to run. … Can the bond rally …
9th August 2012
We are among the most bearish forecasters on the near-term prospects for Emerging Europe and expect the region to underperform the rest of the emerging world over the next couple of years. But looking further ahead the outlook is much brighter. Indeed, …
8th August 2012
Although the Czech National Bank (CNB) left interest rates on hold today, we think the weakness of the economy could prompt one further 25bp rate cut before the end of this year. … Czech Bank could cut rates once more this …
2nd August 2012
The latest manufacturing PMIs suggest that while industrial output in Emerging Europe has not collapsed to the same extent as in the euro-zone, neither is it growing. The authorities will become increasingly focussed on reviving growth, but in truth only …
1st August 2012
With the Polish economy slowing and inflation set to fall, we have revised our interest rate forecast and have now pencilled in 100bps of rate cuts (to 3.75%). This would suggest that the recent rally in Polish bonds has further to run. … Polish interest …
31st July 2012
Signs that Hungary’s government is softening its stance on the precise form of financing assistance it is negotiating with the IMF is clearly good news. But there are still plenty of stumbling blocks to a deal being agreed. We fear the recent rally in the …
30th July 2012
Paradoxically, the apparent survival of Romania’s President in Sunday’s referendum could pave the way for a protracted period of political instability. This is likely to take its toll on the financial markets over the coming months, possibly causing the …
Deepening problems in the euro-zone continue to take their toll on Emerging Europe. Most of the region’s economies appear to have weakened in Q2. Even the region’s strongest performers, Russia and Poland, are starting to see the first signs of a slowdown. …
27th July 2012
