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End of tightening monetary cycle drawing closer
Fri, Jul 18 2008, 12:26 GMT
by Danske Research Team
Most central banks in
CEE have tightened monetary conditions rapidly since mid-2007 in response to
rising inflation and increased nervousness in financial markets. Hawkish
central banks, especially Poland and Hungary, have supported their respective
currencies, and the acceptance of Slovaks Euro-bid as of January 2009 and the de
facto revaluation of the Slovak koruna, have led to a strong performance from
most CEE currencies this year. Strong currencies should reduce the need for
further rate hikes in the CEE region - some central banks in the core CEE
countries have ceased hiking rates. However, we expect one 25bp hike from both
the Hungarian and Polish central banks, while the Romanian central bank is
expected to lift its key rate by another 100bp to help correct large imbalances
in the Romanian economy.
The South African (SARB) and Turkish
(TCMB) central banks over the last year have been more reluctant to address
lower real interest rates and higher risk premiums. As a result, both TRY and
ZAR have been under heavy selling pressure since last summer. However SARB and
TCMB have recently recognised the need to lift real interest rates, which are
(still) markedly lower than one year ago and that makes both currencies vulnerable
going forward. We are looking for at least one more rate hike of 50bp from both
these central banks in the coming months. SARB might then go on hold, while
TCMB could do one more final hike. In the core-CIS, the central banks are well
behind the curve with their tightening schedule, and the need for further
monetary tightening is increasingly evident. However in both Ukraine and Kazakhstan growth is slowing down fast, and this
increases the likelihood of central bankers not tightening. The central bank in
Russia is trying to steer a sensible course, but it too lacks
support from a tighter fiscal stance.
Published on Fri, Jul 18 2008, 12:29 GMT
Archive
- The Russian central bank treads a dangerous path
Published On Fri, Nov 28 2008, 16:27 GMT - Rating cycle turning decisively negative
Published On Fri, Nov 21 2008, 13:56 GMT - The zloty's surprising demise
Published On Fri, Nov 14 2008, 15:59 GMT - Sharp drop in inflation equals lower rates
Published On Fri, Nov 7 2008, 15:24 GMT - A challenge for EU cooperation
Published On Fri, Oct 31 2008, 15:30 GMT
Danske Bank
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