CEE: Turkey hiking rates again
Today's calendar in the region is basically empty. Elsewhere today, we have a central bank meeting in Turkey. We expect another rate hike of 250bp to 37.5%, which is broadly in line with expectations, but surveys show a wider range of rate hikes. The latest inflation release in October showed the underlying trend starting to improve not only for the core rate but also the headline. Accordingly, we expect the bank to consider a slower hike. However, risks are on the upside given strong tightening moves since August.
In FX, yesterday brought an unexpected turn in Czech rates. The market was heavily paid across the curve, more so than elsewhere in the CEE region. The rates move thus shot the interest rate differential up for once, erasing the potential for the CZK weakness we mentioned earlier. EUR/CZK responded by moving lower and back to 24.450. For now, this seems to match the rate move exactly. However, it is hard to say where rates will head today. Yesterday's statement from the Czech National Bank, released after the rate move, suggests that the discussion about waiting for January inflation continues. On the other hand, weak economic data and a stronger koruna are reasons for lower rates and bets on an earlier rate cut. Despite the timing of the first rate cut, we think the short end of the curve should be lower, leading the CZK to weaker levels. Thus, we remain negative on the currency.
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