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Macro week ahead: CBR to hike 'modest' 50bp, might change intervention mechanism – Hungarian MPC to leave rates unchanged


Central bank meetings in Russia and Hungary are set to dominate the macro agenda across our CEEMEA universe during an otherwise data-light week.

The CBR is facing an unenviable task this week. It is terms of trade shock, rather than the short-term spike in inflation that is of greater concern in our view. The shape of adjustment to this shock and, consequently, the CBR’s policy mix over the next several months will be increasingly dictated by financial stability considerations, rather than inflation per se, we believe. For now there is room raise rates only modestly — by 50pb this week — and allow RUB to take the brunt of the adjustment. Please, see our note CBR Monetary Policy Preview: Navigating between financial stability risks for a broader discussion.

Hungarian MPC, on the other hand, is not pressured to act. The last time Hungary cut rates was in July and since then the MPC has kept its rate guidance unchanged, promising not to touch rates before the end of 2015 unless the recovery proves stronger than anticipated or they have to protect the forint from a strong deterioration in risk sentiment. There are arguably reasons to tilt more to the dovish side now in light of rising growth concerns in EU as well as deflationary pressures from declining commodity prices, but we would not expect significant changes to the official rhetoric now. Especially, as the MPC has other policy tools to focus on for now: Funding for Growth Scheme, FX debt exchange, interest rate swaps.

Vladimir Kolychev, Daria Isakova
VTB Capital analyst


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