TCMB to cut again, SARB on hold
Earlier in the year, the Turkish central bank (TCMB) hiked interest rates aggressively to curb the freefall in the Turkish lira. However, since then the lira has stabilised and the TCMB has started to 'normalise' rates. We saw the latest rate cut a month ago and we expect the TCMB to continue the rate-cutting cycle next week. Even though the Turkish government has put considerable pressure on the TCMB, we expect only a 50bp cut to 8.25% - in line with consensus.
The South African central bank continues to face conflicting policy choices. While inflation remains elevated and above target, we think the SARB will wait to hike interest rates and believe that concerns about the weak economic growth outweigh inflation concerns. Therefore, we expect the SARB to stay on hold, maintaining the key policy rate at 5.5%. However, we also acknowledge that inflation is uncomfortably high and some MPC members will favour a rate hike at next week's MPC meeting.
Only minor changes to our EMEA FX forecast
As we do not intend to publish Emerging Markets Briefer this month, we have made minor adjustments to our EMEA FX forecast. Hence, we have changed our three-month forecast for both the PLN and HUF in a slightly more negative direction due to recent weakness, mostly reflecting uncertainty about Hungarian banking legislation. Overall, we maintain a fairly positive view on the forint on a 6-12 month horizon and have left our HUF forecast over this horizon unchanged. We forecast EUR/HUF at 315, 305, 305 in three, six and 12 months respectively and we forecast EUR/PLN at 4.10, 4.10 and 4.15 in three, six and 12 months respectively.
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