News
KZ: Neutral – MinFin sells KZT 11.5bn (EUR 54.5mn) in 15Y GB, yield at 5.5% (p2)
PL: Negative – July industrial production falls by 6.0% mom / Neutral – July PPI accelerates to 5.9% yoy (p2)
RO: Negative – MinFin sells RON 400mn in 3Y ROMGB, yield at 7.34% (p2)
Today’s Events
HU: June Wages, Aug Econ Sentiment, Business and Consumer Confidence / LV: July PPI / PL: July Core Inflation / RU: Money Supply as of 15 Aug / SL: July PPI
EEMEA Markets
Markets in the region have moved to price out rate hikes over the past couple of weeks amid heightened uncertainty on the outlook for the global economy. Can central banks go one step further and cut rates at this stage? The global environment is changing quickly and the risks to growth have undoubtedly shifted in a negative direction. What else do central banks need to see to pull the trigger on rate cuts.
For Czech, Poland, Russia and Romania, central banks at this stage do not have sufficient evidence to hand to indicate that the downside risks to growth are sufficient to trigger rate cuts. While there has been a large increase in uncertainty and Q2 GDP pointed to a slowdown in economic activity, all 4 central banks most likely need evidence that this will persist into Q4 before pulling the trigger on rate cuts. July activity data in Russia showed an improving pace of growth. While the headline YoY industrial production reading for Poland for July was weak, in MoM SA terms IP showed gains, albeit after a weak June. In Romania at least for now the NBR will wait to monitor the impact of lower inflation on real consumer purchasing power) while in Czech, with the policy rate sitting at 0.75% and 75bp below the ECB, the Bank will likely need to see 2-3 months of hard data before moving in that direction.
In Hungary, and to a lesser extent Serbia, central bank focus will be on financial stability as much if not more than it will be on inflation pressures. With EUR/HUF holding up and little that the NBH can do about CHF/HUF, could it not support the economy by cutting the policy rate? We see this as unlikely given that the NBH is likely to have concerns about mounting depreciation pressure on HUF going forward. Turkey is most interesting, with the next rate decision scheduled for next Tuesday.
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Gillian Edgeworth
UniCredit Research