Review

  • At yesterday’s MPC meeting, the South African central bank (SARB) decided to cut its key policy rate by 50 basis points bringing it down to 6.0%. In our view this was the final cut and the SARB will stay on hold for some time to come.

  • Russian Q2 GDP growth remained unchanged from the preliminary estimate at 5.2%. This brings the H1 10 growth to 4.2%. On the production side, manufacturing presented the strongest growth, but unfortunately the construction activity was still declining in y/y terms in Q2. We keep our 2010 GDP growth forecasts intact, but are getting more optimistic on 2011.

  • Czech inflation in August came out somewhat lower-than-expected when it remained flat compared with the previous month, at 1.9% y/y while consensus expected a moderate increase to 2.0% y/y. More importantly, however, is the fact that inflation also came out lower than the Czech central bank (CNB) expectation of 2% y/y and stayed below the CNB’s inflation target of 2% – further underlining the fact that there is no real need to tighten monetary policy in the Czech Republic any time soon despite what some Czech central bankers have recently suggested. 


Preview

  • We expect Hungarian inflation at 4.0% y/y in August – unchanged for July. Hence, Hungarian inflation remains above the Hungarian central bank’s official inflation target of 3%. Hence, despite the continued very lacklustre growth in the Hungarian economy, inflation remains too high. 

Trading update

  • The August inflation numbers for Hungary are likely to confirm that Hungarian inflation continues to run above the central bank’s inflation target. Contrary to that is the situation in the Czech Republic where inflation remains well-contained and below the central bank’s inflation target. That in our view is a clear argument for being positioned for even higher rates in Hungary relative to Czech rates – especially at the short-end of the curve.