Key events in EMEA and Latam next week

A lacklustre PMI reading suggests downward risk to our forecasts, suggesting the economy is no longer tracking the V-shaped recovery path. However, September figures should have limited market significance. The central bank has convinced investors that current figures will not impact its monetary policy.

The fourth quarter will be the real test for the economy. The mounting number of Covid-19 cases suggests more of a W-shaped growth path.

The highlight in Hungary next week will be the October rate-setting meeting by the central bank, although we see this as a non-event for markets, with no change in rates and no change in tone. The latest downside surprise in inflation gives the National Bank of Hungary some comfort, but the recent underperformance in the forint increases the chances of another hike in the 1-week deposit rate.

The Bank of Russia is likely to keep the 4.25% key rate unchanged given the recent pick up in inflationary pressures amid weakness in the rouble, but the medium-term signal should remain dovish.

The softening in demand, which is likely to be confirmed by next week’s activity data, signals below-target CPI in 2021 and leaves room for a key rate cut to 3.5-4.0% in 2021 provided market conditions allow.

Following a surprise policy rate hike last month, the central bank has further raised its effective cost of funding rate to above 12%, continuing previous tightening measures to control inflation and support the currency.

In October, the Bank is likely to continue tightening by pulling the policy rate to 11.75%, translating into a 150 basis point hike. Such a move would also provide additional flexibility to further tighten liquidity and to raise the effective funding rate if required.