Our call: A switch to a more gradual rate hike cycle from May.

Rationale: While the Hungarian central bank was among the first to start tightening (in June 2021), the road might be longer than initially thought. Underlying inflation pressures reached double-digit territory in April. Inflation expectations of households are becoming less anchored, while an increasing number of companies (60-80%) are considering further increases in prices. Add in the weak forint, labour shortages, a pre-election fiscal thrust and a more positive output gap to the equation, and we end up with a need for a more lengthy tightening cycle, with a terminal rate of around 8.25% in the fourth quarter.

Risk to our call: A stronger-than-expected fiscal rebalancing/tightening could lift some of the burden from monetary policy, giving an opportunity for the central bank to stop its own tightening cycle at a lower terminal rate (probably at around 7.5%).

Peter Virovacz

Czech National Bank

Our call: Last rate hike in June.

Rationale: The announcement of a new governor is likely to move the CNB from being the biggest hawk in the region to the biggest dove. In the baseline scenario, the current board operating under the current governor will raise interest rates by at least 100bp, following a CNB staff recommendation. However, from 1 July, a new board will take over the leadership, which will shift monetary policy towards a dovish view, which brings rates stability as well as cuts to the outlook.

Risk to our call: The composition of the new board is the biggest risk that could change our call significantly. The question is whether the president will appoint names close to the new governor or whether views on the board will be diversified, which would make it harder to find consensus and likely lead to a longer period of stable rates.

Frantisek Taborsky

National Bank of Poland

Our call: Rates cycle to be continued towards 8.50%.

Rationale: High inflation is the number one economic and political issue, and the Monetary Policy Committee has already lifted the main policy rate from 0.10% to 5.25%. However, the decision to increase it by 75bp in May (compared to 100bp in April) is not a sign that the tightening cycle is drawing to an end. With headline inflation potentially reaching 15% before the end of this year, we still see a lot of room for further tightening and we see a target rate at 8.50%, which could even potentially be reached this year. Given the scale of fiscal stimulus, the policy mix only recently turned contractionary. Markets expect rate cuts in 2023, but our CPI scenario does not warrant such a swing in monetary policy.

Risk to our call: Inflation risks remain to the upside amid second-round effects, a de-anchoring of inflationary expectations, a wage-price spiral, and expansionary fiscal policy. With real rates remaining so negative, the MPC is unlikely to stop tightening unless it sees a turnaround in inflation.

Adam Antoniak

National Bank of Romania

Our call: Terminal key rate at 5.50% by the end of 2022.

Rationale: There's a considerable difference in key rates in Romania compared to its CEE3 peers (Poland, Czech Republic and Hungary). Given that the discussion about the transitory nature of inflation is well behind us, that suggests that growth concerns are a bigger factor behind this differential. However, the apparent gains of this policy stance could, in our view, be more than offset by the market perception that the NBR is too far behind the curve and will need to allow a swift adjustment higher at some point in time.

Risk to our call: Should the other CEE3 central banks continue the pace of rate hikes, the NBR will be forced to follow. On the other hand, eventual rate cuts in the CEE3 space are unlikely to be followed in Romania over the next couple of years.

Valentin Tataru

Central Bank of Turkey

Our call: Rates to remain on hold for the rest of the year.

Rationale: Given that the CBT’s policy framework relies mainly on an FX-protected deposit scheme, we have seen a two-pronged approach lately. Firstly, it tightened reserve requirements to curb commercial TRY loan growth. Secondly, and in line with the "liraisation" strategy which aims to encourage a higher take-up of FX-protected TRY deposits on the retail side and to strengthen its FX reserves, the CBT has also made adjustments in the FX-protected scheme to increase appetite. We expect the same policy line to continue for the remainder of this year.

Risk to our call: Risks are on the rise in the near term, due to: 

1. An acceleration in lending that can feed into local FX demand, increasing inflationary pressures via domestic demand and a weakening currency, further pressurising the current account despite currency depreciation if we see real lending growth.
2. The war in Ukraine leads to significant problems via the trade channel, adverse effects on tourism, pressure on oil prices and a higher risk premium.
3. A less supportive global backdrop adds challenges given Turkey’s high external financing requirements. This risk profile could lead to a rate response.

Muhammet Mercan

Asia (ex Japan): Our calls at a glance

Source: ING

Disclaimer

This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more