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Macro week ahead – NBP to cut base rate after a pause

 
06.10.2014

Poland’s central bank is to publish its decision on the base rate on Wednesday. Meanwhile, we have the CPI data for September in both the Czech Republic and Hungary, and for the first week of October in Russia. Also in Russia we have more hard data for September: the AEB is to present new car sales statistics, customs publishes its non-CIS imports and the Ministry of Finance is to unveil budget execution numbers. In addition, the CBR is set to reveal the initial estimates of BoP for 3Q14 and Rosstat is to present consumer confidence index for 3Q14.

On the political landscape across our CEEMEA universe, Hungarian local elections are held on 12 October (the first election according to the new Constitution) and senate by-elections in the Czech Republic are on 10-11 October.

In the aftermath of the ECB’s cut in borrowing costs and strengthening deflation in August (to -0.3% YoY, the fastest decline in at least three decades), more and more analysts have started to anticipate that monetary policy easing will soon be relaunched in Poland. We and consensus expect a 25bp cut in key rate at the forthcoming meeting. Especially, given that early in October, Poland's central bank governor reiterated that "a move on interest rates is very likely" at the forthcoming meeting and added that the MPC would discuss whether a cut larger than 25bp was needed to spur growth.

Switching to Hungary, the headline CPI might have slipped back into the red in September (-0.2/-0.3% YoY) from 0.2% YoY growth registered in August, given the base effect as in September 2013 there was a steep increase in tobacco prices and a hike in the financial transaction tax. However, the underlying trend seems to have stayed intact. To recap, in the recently published Inflation Report the Hungarian central bank says “Inflationary pressure from rising consumption and the weakening forint exchange rate may be offset by moderate import prices... the rate of inflation may gradually rise and may approach the 3% target by the second half of the forecast horizon."

In the Czech Republic, we think that inflation kept growing in September and reached near the 1% YoY mark (in other words, the lower bound of the inflation target). The weaker koruna, as well as the turnaround in food prices, are fuelling consumer prices, in our view. Hence, the risk of deflation is receding a bit, especially coming closer to the beginning of next year when we expect a sharp acceleration due to utility price cuts in January 2015.

In Russia, the cash-for-clunkers initiative seems to have supported the car market and the drop in car sales could have abated. The increasing dichotomy between actual consumer purchases and their confidence level, observed during 1H14, is unlikely to be sustained over the long term, but we do expect some deterioration to be revealed in the 3Q14 consumer confidence index. The recent rouble sell-off might become clearer with the first estimate of BoP and we expect to see higher net FX purchases (chiefly by corporates, but households as well to a certain degree). On the inflation front, the first week of October might show a further upturn as the stabilising impact from the import food ban is to be compensated (or even overcompensated) for by the inflationary impact from the weaker currency.

Daria Isakova, Vladimir Kolychev
VTB Capital analyst

Tags:
CPI, ECB

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