MNB's Doves Remain In Charge

The Hungarian central bank (MNB) is broadly expected to continue its easing cycle with yet another 25bp rate cut, which should bring the key policy rate to 5.75% at next week's Monetary Policy Council (MPC) meeting. It seems apparent that the doves on the MPC are more or less in full control of monetary policy. Consequently, we expect the MNB to continue the easing of monetary policy in coming months despite inflation being well above the level of the MNB's official target of 3%.

CNB getting ready to take action on the koruna
At the latest monetary policy setting meeting of the Czech central bank's (CNB), the board decided to cut the key policy rate to a technical zero of 0.05%. The CNB is, therefore, now effectively stuck at the Zero Lower Bound and further monetary easing through interest rate cuts is simply not possible. As a consequence, the CNB needs to utilise other monetary policy tools if it needs to ease monetary policy.

The most obvious instrument is to use the exchange rate to ease monetary policy. The CNB has been very reluctant about moving in that direction but the reluctance has been costly and, in our view, the CNB's lack of action no doubt strongly contributed to the further downturn in the Czech economy recently witnessed.

Lower inflation and slower growth to trigger Turkish rate cut
Next week, the Turkish central bank (TCMB) will announce its key policy rate in connection with the meeting of the TCMB's Monetary Policy Committee (MPC). Turkish macroeconomic data has certainly not been encouraging recently. It is very clear that the Turkish economy is continuing to slow down and inflation is inching further down towards the TCMB's 5% inflation target. This is opening the door for rate cuts and we - in line with consensus - expect the TCMB to cut its key policy rate by 25bp to 5.50% next week.

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