Market movers ahead: Czech and South African rate decision
In addition to the rate decisions in the Czech Republic and South Africa, last year’s Q4 current account deficit and inflation for February in South Africa will be key economic events.We expect the Czech central bank (CNB) to keep its key policy rate on hold at 1.00% at next week’s monetary policy setting meeting. Given our expectation of continued weakness in private consumption and the subdued inflation outlook, the CNB will have no need to tighten monetary conditions this year. We therefore expect the key policy rate to remain unchanged at 1.00% during the year. In South Africa interest rates will stay on hold as well. Thanks to the ongoing recovery of the South African economy monetary easing has come to an end. On the other hand, given the weakness in private demand, the SARB will be in no hurry to tightened monetary conditions any time soon.
FX Outlook: Stay sidelined in Turkish markets on political risk
Since the beginning of the year we have seen a strengthening of most of the EMEA currencies and most of them are currently trading at what should be considered rather strong levels. PLN, HUF and ZAR are at their strongest in over a year. However, the long-term potential for further strengthening of the EMEA currencies is limited by the overvaluation of most of these currencies, especially ZAR and TRY. The Turkish lira in combination with the increased political unrest in Turkey seems to be particularly vulnerable. We therefore recommend investors to stay on the sidelines in Turkish markets for now.We would also recommend investors to keep an eye on the situation in Latvia. Even though the Latvian political jitters have not had any major market impact and there has not been any spillover effect so far, an escalation of the negative newsflow could trigger a sell-off in other CEE markets.
