The major event this week is the CBR rate decision on Friday. Geopolitical tensions have topped the monetary policy agenda recently, as associated pressure on local financial markets triggered emergency tightening to shore up RUB last week. Geopolitical uncertainty remains elevated as we head to press, so there is little reason to expect a reversal of this temporary tightening at the Friday meeting. On the other side of the policy reaction spectrum, it will perhaps take a severe escalation of the conflict and an accompanying upsurge in capital flight for the CBR to consider additional tightening measures. In this regard, the regulator is likely to wait and see in its emergency mode for the coming months and any reversal of the recent ‘temporary’ tightening is likely to be gradual, with most of it coming in 2H14.
In Poland, an inflectionless recovery is underway. Headline inflation remained at 0.7% YoY in January, well below the NBP's inflation target of 2.5% +/- 1pp, and we expect it to stay near this level in February. Even more important, the latest inflation expectations suggest price growth is to remain muted over the next 12 months. Hungary might print an artificial YoY deflation in February, after zero growth a month ago, owing to the government-mandated drop in household energy prices.