Danske Research Team
Danske Bank A/S
The continued concerns over the geopolitical situation in Ukraine, the fear of an outright Russian invasion of Ukraine and the Russian counter-sanctions, especially on imports of certain food and agricultural products, have unnerved investors and the central and eastern European (CEE) currencies have had quite a stormy month.
The Russian counter-sanctions on imports of certain food and agricultural products have raised concerns about deflation in CEE, as European food exporters are now dumping their products in Europe rather than exporting them to Russia. This is likely to put further downward pressure on prices. Poland, Hungary, Romania and Bulgaria already have deflation and the Czech Republic is inching closer.
The Russian counter-sanctions on imports of certain food and agricultural products have raised concerns about deflation in CEE, as European food exporters are now dumping their products in Europe rather than exporting them to Russia. This is likely to put further downward pressure on prices. Poland, Hungary, Romania and Bulgaria already have deflation and the Czech Republic is inching closer.
In our view, the increased likelihood of monetary easing across CEE will continue to put depreciation pressure on the CEE currencies over the next three to six months but more than is currently priced by the markets. We believe this will be even more important than the renewed geopolitical tension, although this risk should not be ignored. In our new FX forecast we have revised our forecast for the CEE currencies in a more negative direction. See our new forecast below and read our updated outlook for CEE countries in our Emerging Markets Briefer, 20 August 2014.
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