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Macro week ahead – digesting CBR's early roll-back in emergency tightening


CPI prints are of most interest on the data front this week, while on the policy front central bankers in Poland and the Czech Republic are expected to sound more dovish, but not be ready to pull the easing trigger just yet.

This week is relatively light on the macroeconomic data front with PMI readings and CPI prints the main highlights. Weekly and monthly Inflation reports are of particular interest now in light of the earlier than expected start to the roll-back in emergency policy tightening. As we noted previously, the latest weekly CPI prints, admittedly moderating from the extremes of December, remain elevated, suggesting either i) a larger or ii) a more front-loaded path of the pass-through from RUB weakness. We, and apparently the CBR as well, believe the latter is more likely, but we need to see more sustained moderation in weekly CPI prints before drawing far-reaching conclusions. It would also be interesting to scrutinise details on the monthly CPI report for signs of moderation in core CPI. The latest weekly CPI reports suggest that three quarters of the acceleration in headline CPI in January might have been driven by food prices, rather than core items. Should evidence of this be found in the details of the monthly report it would also suggest that the inflation run rate is set to moderate quickly in the near term, as FX pass-through into food prices is soon to exhaust itself, in our view.

Apart from data releases, local markets will also continue to digest the CBR's latest decision to lower interest rates (for more details, please see our CBR Monetary Policy Decision – Starting to roll back emergency tightening, published this morning). As seen in the initial negative reaction in RUB on Friday, this decision took the markets by surprise. We believe the CBR has all the capacity to prevent any destabilisation in FX expectations, but that was also the case back in mid-December, when the regulator allowed acute FX volatility and preferred not to ‘burn reserves’. The markets might as well attempt to test whether this preference has changed or not.

Elsewhere across our CE3 universe, central bankers in the Czech Republic and Poland gather to rule on policy rates this week. Both countries face a strong disinflationary environment on the back of the still sizable slack in the economy (labour markets), augmented by falling commodity prices (both food and energy) and stable/appreciating currencies. This tilts the balance of risks towards further monetary easing. We expect more talk, rather than action just now, but rate cuts and additional currency weakness will clearly be on the agenda in Poland and the Czech Republic over the coming months.

Vladimir Kolychev
VTB Capital analysts


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