CEE: FX welcomes central bankers' hawkishness – ING

As expected, the Central Bank of Turkey (CBT) left rates unchanged at 50% and added a bit to its hawkish communication. The statement turned cautious as a result of increasing uncertainty surrounding the pace of inflation improvements. The CBT reiterated that its tight monetary stance would lead to a) a decline in the underlying trend of monthly inflation by moderating domestic demand, b) real appreciation in the Turkish lira, and c) an improvement in inflation expectations, ING’s FX analyst Frantisek Taborsky notes.

Rates remain under pressure

“We believe there could be room for a first rate cut in December, but it will, of course, depend on the October and November inflation numbers. On the positive side, the CBT seems to be aware of the situation and the risk of a mistake is diminishing, which should confirm the bulls in the TRY market.”

“In Hungary, the National Bank of Hungary's deputy governor reiterated that the pause in the rate-cutting cycle may be longer given the headwinds in the EM space. Although the market is pricing in a first rate cut only in January and around 50% for December, the headlines supported the currency and for a while, we got below 400 EUR/HUF.”

“However, yesterday rates and bonds across the region came under pressure again due to higher core rates in the US, which later reduced some gains in FX as well. We'll hear more next week when the NBH is scheduled to meet. It's already almost certain that a rate cut is not on the table, but we could hear more details on how long the pause in the cutting cycle may be.”