Key events in EMEA and Latam next week

The Central Bank of Turkey has already cut the policy rate significantly with an extended easing cycle since mid-2019, pulling it markedly below the annual inflation rate. But given its inflation estimate at 7.4% and focus on ex-ante real rate (by relying on its own forecast) to guide its policy decisions, the central bank is likely to ease by a further 50 basis points.

The main event in Hungary next week is the rate-setting meeting. We have downgraded our GDP outlook to -5.1% in 2020 but we think the National Bank of Hungary will still forecast moderate growth in its upcoming Inflation Report. We do expect a dovish tone from the bank next week, showing a readiness to step in, if price stability warrants it. But the NBH might be able to provide some stimulus without cutting rates if it wants to. For example, it could install a hard cap on its one-week deposit tender. The NBH could then easily increase liquidity in the interbank market, pushing short-end Bubor gently lower. This cap would add another handy tool to the already complex monetary policy set-up, to micromanage the monetary transmission channel.

During the last two monetary meetings, the Czech National Bank delivered a larger-than-expected cut of 75 basis points versus the 50 basis points expected by the market. At the last meeting, the CNB board admitted that the cut was bigger than the staff-recommended forecast, as they decided to frontload the decision to avoid cutting again in the second half of the year. This suggests that rates could remain stable for some time, at least into next week. This also confirms the latest comments from CNB Board members, including Governor Jiri Rusnok, who have signalled that rates will stay on hold this month.

We expect a gradual recovery in retail sales from -22.6% to -14% year-on-year. The headline figure should be subdued by the collapse in car and fuel sales, which have fallen 50% and 20% YoY, respectively. In the case of other components, the contraction should be in the single digits.