Key events in EMEA next week

The Bank of Russia policy meeting with be the key focus of the week. The higher-than-expected CPI of 5.7% year-on-year in February has created a case for an increase in the key rate this year. Moreover, the continued growth in CPI, to 5.6% YoY as of 9 March, suggests that a hike at the forthcoming 19 March meeting will be under serious consideration. Meanwhile, our base case is still two 25 basis point hikes - at the April and July core meetings. A March hike would be risky given the lack of CBR confidence in the strength of the economic recovery, as data on 4Q20 GDP and February activity will be available only after the 19 March meeting. A higher magnitude of rate hikes this year is also not out of the question, but a confirmation of strong economic recovery, expected by the CBR but not by us, is a pre-requisite. In any case, we expect a clearly hawkish statement by the CBR next week.

In other news, a set of activity data will be released, including industrial output on Tuesday and the remaining batch on Friday, after the CBR meeting. The recent pick up in budget spending suggests that the February activity numbers might be somewhat better than our cautious expectations, but we still doubt that the February numbers will show improvement relative to the start of January.

The coming week will be a data-rich one for Poland. On Monday, we will see the CPI inflation figures for February. We estimate that rising fuel prices should push February's CPI up to 2.8% YoY vs January's 2.7%. However, there is a risk factor related to a change in the CPI basket, which could affect both the January and February readings. The daily indicators suggest that real activity should improve relative to January. We expect the annual decline in corporate employment to be shallower than in January (-1.7% YoY vs -2.0% YoY). This should be accompanied by 5.0% YoY wage growth. Industrial output is expected to grow by 4.9% YoY in February. The improvement compared to January should be buoyed by a more favourable calendar, among other things. The lifted restrictions on shopping centres should support retail sales. We expect them to increase month-on-month but not enough to move above the level seen one year ago.

We expect the CBT to react to upside risks on the inflation front - stemming from higher commodity prices - with a 100bp rate hike to 18%. Reviving currency volatility and the motivation to strengthen reserves and support demand for TRY assets should be other factors for such a decision.