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Macro week ahead – rating actions in focus


This week is fairly light on the data front, with inflation prints across CEEMEA being the key highlight. In the meantime, the local market is likely to focus on oil price trends, as well as the recent and potential rating actions.

The inflation prints for the last month of 2014 are the main highlight on the data front across CEEMEA this week. As has been the case of late, we would expect a further dichotomy across the region, with strong disinflationary forces at play in CE3 economies and the FX-related inflationary shock in Russia. Rosstat has already published a preliminary estimate, showing headline CPI in Russia amounting to 11.4% YoY in December and this week we await further details as to the composition (food vs. non-food, etc.) as well as the fresh weekly print for the start of this year. In the meantime, CPI readings across CE3 (Poland and Hungary are to publish December CPI reports this week) are likely to feature further dips into the negative territory.

We expect the diverging inflationary trends to persist in the coming months. In Russia, the pass through from a weaker exchange rate is likely to gather pace over the next 2-3 months, pushing headline inflation well into double digits (13-14%) before it peaks at the end of 1Q15 and disinflationary cyclical impulse starts to reverse the trend into 2H15. This, along with a continued decline in oil prices and consequent pressure on the currency, will likely delay monetary easing after the recent extraordinary tightening. In contrast, CE3 economies face strong disinflation on the back of the still sizable slack in the economy (labour markets), augmented with falling commodity prices (both food and energy) and stable/appreciating currencies. This tilts the balance of risks towards further monetary easing in the respective countries, and although the Polish MPC is unlikely to pull the trigger just now (we expect no rate changes this week), rate cuts will clearly be on the agenda in both Poland and Hungary over the coming months.

Amid the relatively muted newsflow on the data front, the local market is likely to focus on oil price trends, as well as the recent and potential rating actions. We remind readers that when S&P decided to place Russia's sovereign ratings (now at the lowest investment grade 'BBB-') on CreditWatch Negative in late December, it indicated mid-January as the likely timeline for concluding its reassessment and any consequent rating action.

Vladimir Kolychev
VTB Capital analyst

inflation, rating

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