Bank of Rossii: to hike or not to hike
Russia's central bank will announce its decision regarding the key rates on Friday 12 September at 11:30 CET. Like consensus, we expected rates to remain unchanged as the data available as of the end of August 2014 indicated. However, fresh inflation data and the geopolitical environment are pressing on the Russian economy, the ruble and consumer prices due to remaining uncertainty regarding new sanctions. Therefore, we now forecast a 50bp hike, joining a minority of seven economists that expect a similar hike (out of a total of 24, one expects a 25bp increase).
South African central bank under pressure to keep inflation under control
The SARB continues to face contradicting policy choices. On the one hand, growth is very weak and clearly requires accommodative monetary policy, while accelerating inflation puts pressure on the SARB to tighten monetary policy to stem inflationary pressures. At Julys MPC meeting, the central bank reacted to rising inflation with a 25bp rate hike. However, this is not likely to be enough, in our view, and the SARB could be forced to hike again. Indeed, we see a high chance that it might deliver yet another 25bp at the next weeks MPC meeting. The outcome of the decision is highly uncertain.
Deflation deepens in Poland
As we already mentioned in last week's edition of EMEA Weekly, we expect Polish deflation to dive further into the red in August. We expect consumer prices to have dropped 0.5% y/y. This is more than consensus of a drop of 0.3% y/y. Hence, it is likely that the markets will become even more aggressively priced for a rate cut at Septembers monetary policy council meeting. This could put further weakening pressure on the zloty. So, even though geopolitical tensions in relation to the Ukrainian crisis seem to be easing a bit, we expect the expectation of monetary easing to keep the weakening pressure on the zloty.
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