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Macro week ahead

Tomorrow, we await monetary policy decisions from Turkey and Hungary, as well as the December CPI report from South Africa. On Wednesday, Rosstat is to publish the weekly CPI data in Russia. The week ends with December’s reports on IP in Russia and retail sales in Poland.

In Turkey, the intensifying currency weakness and elevated inflation (FY13 headline CPI reached 7.4% YoY, up from 6.1% the previous year, owing to higher food and fuel prices on the cold weather and TRY weakness, respectively) is forcing the CBRT to tighten policy further in 2014. While it came as a surprise to nobody that inflation exceeded the target of 5% +/-2pp, it is of concern that the actual reading came 0.6pp higher than CBRT’s forecast of late October. In this regard, Turkish policymakers might have to raise interest rates to curb inflation expectations. We expect a 25-50bp hike in the upper boundary vs. the Bloomberg-reported consensus view of no change in rates.

Hungary is likely to continue its easing cycle, given the benign inflation environment – headline CPI slowed further in December to 0.4% YoY, its lowest in 43 years. At the same time, core inflation was at 3.5% YoY (above the target) which, combined with concerns over forint stability, might temper the NBH's easing bias. Hence, we do not rule out a smaller 15bp rate cut.

In Russia, we think IP growth improved to some extent but remained below zero in December. Warmer weather conditions are likely to have weighed on electricity consumption and gas output, but at the same time could have helped manufacturing. Besides, a moderate pick-up in weather-adjusted electricity consumption, as well as rail cargo handling bouncing into the black for the first time in more than a year, might imply a tentative improvement in underlying growth momentum across the manufacturing industries.

The weekly CPI will likely bring further evidence of headline disinflation due to the favourable base effect in tariffs and food prices.

Vladimir Kolychev, Daria Isakova
VTB Capital analyst

CPI, Russia, inflation

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