Key events in EMEA and Latam next week

Following a broad-based disinflationary trend in December, we expect January inflation to remain relatively benign at 0.9%, pulling the annual figure down to 20.1%. This is due to to weak domestic demand, a stable currency, the government’s decision to extend tax cuts on consumer durables and price cuts in natural gas, electricity and water - though food prices could pose upside risks.

We think the retail sector ended 2018 on sound footing, but there's not enough momentum here to repeat the nearly 5% Hungarian GDP growth in 4Q18. The growth of industrial production remains sluggish despite an expected rebound in December. We see the general budget starting 2019 with a surplus due to some accounting measures regarding the EU money inflow.

CPI growth in Russia is set to accelerate from 4.3% YoY in December 2018 to around 5.2% YoY in January 2019, primarily as a result of the VAT hike from 18% to 20% - effective 1 January.

We doubt that this acceleration will be an argument for the central bank to react in any way, because the VAT hike should have only a temporary effect on CPI, and it has been factored into the monetary policy framework since mid-2018. We therefore expect the Central Bank of Russia (CBR) to keep the key rate unchanged at 7.75% next Friday. At the same time, the CBR's commentary will be in focus for clues about the subsequent meeting in March, where the outcome is more uncertain.

We’ll be looking for signals of whether the CBR is seeing risks of CPI hitting the previously indicated 6% threshold in the coming months and/or inflationary expectations continuing to deteriorate at the household and corporate level.

With the ROBOR-linked tax apparently here to stay, the National Bank of Romania's (NBR) room for manoeuvre on rates seems quite limited. Fortunately, there seem to be no imminent inflationist pressures which would require monetary tightening. We look for no change at the 7 February meeting. As was the case in January, media attention will likely be channelled towards the NBR’s stance on fiscal measures and its communication with the government.

With year-end inflation at 2.0% - well within the 3.0% ±1.5ppt target band - and expectations well contained, the National Bank of Serbia (NBS) seems to be turning its attention now towards maintaining a stable EUR/RSD rate. In 2019 so far, intervention has been one-sided but this time towards selling EUR/RSD and preventing the dinar's depreciation. Interbank rates have tightened a bit but for now, we don’t see meaningful pressure on either FX or interest rates.

December statistics will be affected by the calendar bias: Two working days will be missing compared to November, leading to weaker figures on the surface. Still, new car sales fell significantly, according to the preliminary figures in December, which will likely push total retail sales on an annual basis into negative territory.

The most important event, however, will be the Czech National Bank's (CNB) rate decision on 7 February. Given recent comments from CNB board members highlighting uncertainty stemming from the global economy, we expect a wait-and-see approach and thus rates on hold.