Key events in EMEA and Latam

The Czech national bank will have to deal with an unpleasant dilemma next Wednesday, as foreign uncertainty persists and weakening activity is becoming more visible in the domestic economy, while inflation hit the upper tolerance band in November. But inflation above the 3% border should be relatively short-lived, as current estimates suggest.

Also, some tightening was delivered by the koruna, which was stronger than the central bank expected by around 0.5% in 4Q19 (EUR/CZK 25.6 vs. 25.7).

We believe that an on-hold decision is more likely next week, which also reflects the latest public statements from some Board members, though two hands for a hike should remain in place like last time.

Taking into consideration the latest GDP and CPI figures, we hardly see any major change in the monetary policy setup by the National Bank of Hungary at its latest meeting in 2019. The only change we can see is a small adjustment to the targeted amount of crowded out liquidity. The central bank might cut it back (again) to the HUF 200-400bn range, which will provide an opportunity to phase out some FX swaps and push 3-m Bubor a touch higher, back to the 20-25bp range.

As we expect the NBH to review the 2020 GDP forecast for an upward revision, the risk assessment is subject to change. So far, the NBH has signalled asymmetric risk to inflation as downside risks strengthened. With a stronger-than-anticipated domestic GDP growth, the central bank might point out that the balance of risks has now shifted back to symmetric.

We expect both employment and wages to stabilise in the enterprise sector in November. The next impulse for the labour market is expected in January due to an increase in the minimum wage by 15.6% year-on-year. This decision should result in an increase in average wage by 1.5 percentage points. The impact on employment is ambiguous – change of dynamics in January will be rather related to a rebalancing of the surveyed firms.

The changes in dynamics in industrial production and retail sales should be moderate after seasonal and working day adjustment. So far, there is no evidence of a further slowdown in the case of both aggregates.