Czech koruna may avoid Swiss-style turmoil

2016 ◽  
Keyword(s):  
Monetary Policy ◽  
Oil Prices ◽  
Central Banks ◽  
Oil Price ◽  
Bond Markets ◽  
Price Rise ◽  
Content Type ◽  
Downward Pressure ◽  
National Bank

Subject The central bank's plans to lift its three-year cap on koruna/euro appreciation. Significance Mounting speculation that the Swiss-inspired currency floor might be scrapped early has led to upward pressure on the currency, buoying demand for shorter-dated Czech local bonds and forcing the Czech National Bank (CNB) to intervene more aggressively to weaken the koruna. While inflation rose to 0.6% in August, there are fears that removing the cap could lead to excessive appreciation of the koruna, putting downward pressure on growth and inflation. Impacts Concerns about ECB monetary policy efficacy, and possible early scaling-back of QE, are making Europe's bond markets increasingly jittery. Oil prices have risen past the psychologically important 50 dollars/barrel level, improving the outlook for inflation. Provided the oil price rise is sustained, this will ease pressure on central banks to loosen monetary policy further. The German economy's slowdown, due to a dearth of investment, is a drag on smaller CEE export-led economies such as Hungary and Slovakia.

Russia spillover, low oil price will challenge Astana

2015 ◽  
Keyword(s):  
Monetary Policy ◽  
Oil Prices ◽  
Oil Price ◽  
National Currency ◽  
Public Confidence ◽  
Content Type ◽  
Slowing Down ◽  
Ukrainian Crisis ◽  
Domestic Products ◽  
Global Growth

Significance The slowing down of Kazakhstan's economy continues against a background of slow global growth, the turbulent economic situation in Russia and low oil prices. Lower-than-projected oil prices will reduce budget revenues and forecasts; on January 16, Astana said it was revising its budgets for 2015-17 to mirror an average oil price of 50 dollars/barrel, as current budgets were based on 80 dollars/barrel. The blow will be softened by substantial reserves, which are expected to be used to stimulate the economy. Dwindling demand for commodities will negatively affect the profitability of Kazakhstan's major producers. The cumulative spillover from the Russian-Ukrainian crisis is substantial, although manageable at present. Impacts Further devaluation of the tenge would undermine public confidence in Kazakhstan's national currency. Increased dollarisation of Kazakhstan's economy will make regulation difficult by monetary policy. Ruble depreciation will put pressure on the tenge and promote replacement of domestic products with Russian imports.

Mexican fiscal consolidation steady despite oil price

2015 ◽  
Keyword(s):  
Monetary Policy ◽  
Central Bank ◽  
Oil Prices ◽  
Oil Price ◽  
Fiscal Consolidation ◽  
Significant Drop ◽  
Content Type ◽  
The Government

Subject The outlook for fiscal consolidation. Significance The significant drop in oil prices should not derail the fiscal consolidation trajectory mapped by President Enrique Pena Nieto's administration, which envisages that the debt/GDP ratio should stabilise by 2017. The fiscal hole opened by reduced oil prices has been compensated with greater taxation income and one-off revenues. Impacts Defying expectations, the oil price plunge did not push the government into an overtly contractionary fiscal correction. An arguably much-needed simplification of the cumbersome taxation regime will not take place due to the government's pledge not to alter it. Loose monetary policy from the autonomous central bank has worked in tandem with the government's fiscal stance.

Currency wars will break out globally

2015 ◽  
Keyword(s):  
Monetary Policy ◽  
Financial Stability ◽  
Foreign Capital ◽  
Central Banks ◽  
Oil Price ◽  
Government Bond ◽  
Bond Yields ◽  
Race To The Bottom ◽  
Content Type ◽  
Macroeconomic Imbalances

Significance Since the start of 2015, 16 central banks have loosened monetary policy, partly because of the fallout from the oil price plunge, which is driving down inflation. This 'race to the bottom' is increasing the scope for 'currency wars', endangering financial stability in countries with macroeconomic imbalances. Impacts A wave of monetary easing will drive government bond yields to new lows, increasing the scope for currency wars. The race to the bottom is forcing many central banks to loosen policy to deter haven-seeking inflows of foreign capital. This race will fuel speculative attacks against currencies, with Denmark's central bank struggling to defend its krone-euro peg.

Room for more rate cuts is limited in Central Europe

2016 ◽  
Keyword(s):  
Monetary Policy ◽  
Global Economy ◽  
Policy Implications ◽  
The Czech Republic ◽  
Content Type ◽  
Core Inflation ◽  
Market Sentiment ◽  
Financial Conditions ◽  
Downward Pressure ◽  
National Bank

Subject Policy implications of the downward pressure on inflation from the renewed oil price decline. Significance The National Bank of Poland (NBP) is under the most pressure to loosen monetary policy further, as the country's core inflation turned negative in January 2016, whereas in Hungary and the Czech Republic, core inflation remains in positive territory. Although the Hungarian Central Bank (MNB) has introduced a range of unconventional measures aimed at giving it greater control of short-term market rates without changing its benchmark rate, it has reached the limits of ultra-loose monetary policy, with fiscal loosening supplanting monetary easing as the main source of stimulus. Impacts Brexit's financial fallout is likely to stay contained, with equity markets rallying and gauges of financial volatility at historical lows. Germany's economy is likely to remain resilient post-Brexit, its composite purchasing managers' index rising to a seven-month high. This bodes well for Central Europe's economies, despite a recent slowdown in growth. Investors are losing confidence in the credibility and effectiveness of global monetary policy. However, very loose financial conditions in the global economy, particularly in Europe and Japan, will keep market sentiment favourable.

Market nerves roil Turkey and Central Europe

2016 ◽  
Keyword(s):  
Monetary Policy ◽  
Fiscal Policy ◽  
Financial Markets ◽  
Central Europe ◽  
Euro Area ◽  
Inflection Point ◽  
Oil Prices ◽  
Oil Price ◽  
Content Type ◽  
Policy Guidance

Significance Markets have taken badly the Fed's more hawkish policy guidance for 2017, not expecting such a shift in monetary policy so soon. The shift in US monetary policy comes just as the ECB is preparing the ground for the gradual withdrawal of monetary stimulus. While Turkish assets are the most vulnerable partly because of the severe escalation in political risk, the Polish zloty is also at risk thanks mainly to its status as one of the most liquid EM currencies. Impacts Investors see global financial markets at an inflection point as monetary policy gives way to fiscal policy as the main source of stimulus. This monetary-to-fiscal shift will fuel uncertainty about the direction of asset prices. Rising oil prices will allay concerns about deflation in the euro-area. As major Emerging Europe currencies suffer, the ruble is rising against the dollar amid oil price rises and Trump’s Russia-friendly remarks.

Fiscal policy may deter holding Romanian debt

2017 ◽  
Keyword(s):  
Interest Rates ◽  
Sovereign Debt ◽  
Emerging Market ◽  
Central Banks ◽  
Bond Markets ◽  
Social Democrat ◽  
Content Type ◽  
East European ◽  
Central Eastern Europe ◽  
National Bank

Subject The outlook for Central-East European debt. Significance A flurry of hawkish commentary from the world’s leading central banks, in particular the ECB, which is preparing the ground for a withdrawal of monetary stimulus, has put significant strain on the domestic bond markets of Central-Eastern Europe (CEE). Under particular pressure are Romanian domestic bonds, because of the threat of fiscal slippages under the new Social Democrat (PSD)-led government, which are likely to force the National Bank of Romania (NBR) to hike interest rates more aggressively than its regional peers. Impacts Despite the central-bank-driven sell-off in global markets, negative-yielding bonds still account for one-fifth of global sovereign debt. Persistent concerns about a supply glut are keeping Brent crude below 50 dollars per barrel, with oil prices down by 14% since end-May. Emerging Market stocks are declining under pressure of hawkish rhetoric from central banks, but not Hungarian and Czech equities.

Weak lira will reflect Turkish election fears

2015 ◽  
Keyword(s):  
Monetary Policy ◽  
Strong Support ◽  
Bond Markets ◽  
Content Type ◽  
Downward Pressure ◽  
Inflation Rates ◽  
The Us ◽  
Government Bond Markets ◽  
High Share ◽  
China’S Economy

Significance Increased uncertainty in financial markets, following the US Federal Reserve's decision in September to delay tightening monetary policy because of concerns about China's economy, is testing the resilience of Emerging Europe's local government bond markets. Poland and Hungary are vulnerable given the very high share of foreign holdings, but sentiment is bleakest towards Turkish assets, with the lira falling by 10% against the dollar since mid-August. Impacts Some EM bond markets have escaped dramatic falls in equities and currencies, partly due to local institutional investors' strong support. CE economies are better placed to cope with a China- and commodities-induced deterioration in sentiment. This is because of Central Europe's negligible linkages with China and its status as a net oil importer. The 22% decline in oil prices since early July is putting further downward pressure on already subdued CE inflation rates. This will keep monetary policy loose and help underpin growth.

Hungarian forint is increasingly vulnerable to attack

2020 ◽  
Keyword(s):  
Monetary Policy ◽  
Interest Rates ◽  
External Environment ◽  
Central Banks ◽  
Content Type ◽  
China Trade ◽  
Bond Yield ◽  
The Us ◽  
National Bank ◽  
Global Growth

Subject Central banks’ policy dilemmas. Significance The National Bank of Hungary (MNB) remains extremely reluctant to raise interest rates despite increasing pressure on the forint. While growth in the euro-area is likely to remain weak this year, strengthening the case for rates to remain on hold, a more supportive external environment, underpinned by an easing of US-China trade tensions, would accentuate the policy dilemmas confronting Central Europe’s central banks, especially given rises in inflation. Impacts Germany’s still-negative ten-year bond yield has risen from record lows in September as markets become less pessimistic about global growth. Markets expect Hungarian monetary policy to remain very dovish, as the domestic twelve-month bond-yield’s end-October turn negative shows. The US S&P 500 index surged by nearly 30% last year and if US-China trade tensions ease slightly this should help it to maintain momentum.

Fed tightening deepens monetary policy rifts worldwide

2017 ◽  
Keyword(s):  
Monetary Policy ◽  
Interest Rates ◽  
Oil Prices ◽  
Inflation Expectations ◽  
Bond Markets ◽  
Quantitative Easing ◽  
Government Bonds ◽  
Content Type ◽  
Political Risks ◽  
Bank Of England

Subject US tightening continued this month despite lower inflation expectations. Significance Monetary policy rifts have deepened since the decision by the Federal Reserve (Fed) on June 14 to raise interest rates for the second time this year despite inflation easing and oil prices falling below 45 dollars per barrel. Growing discord between central banks and bond markets has spread to the Bank of England (BoE), where three of the eight committee members disagreed with the June 15 decision to keep rates on hold despite inflation spiking to its highest since June 2013. The ECB and the Bank of Japan (BoJ) are also under pressure to set out plans to wind down their quantitative easing (QE) programmes. Impacts ‘Reflation trading’ continues to unwind; the world stock of negative-yielding government bonds has surged to nearly 10 trillion dollars. US equity markets are hovering near records despite a plethora of vulnerabilities, including lower oil prices and rising political risks. Emerging markets (EM) inflows continue to surge, but higher US rates may force EMs to raise rates before they are ready, hitting activity. The divergence between rising US rates and ultra-loose ECB and BoJ policy will cushion the dollar, protecting it from rising US risks.

Koruna is likeliest in Central Europe to rise further

2017 ◽  
Keyword(s):  
Growth Rate ◽  
Czech Republic ◽  
Developing Economies ◽  
Equity Markets ◽  
Central Banks ◽  
Bond Markets ◽  
The Czech Republic ◽  
Content Type ◽  
National Bank ◽  
Positive Sentiment

Subject The rally in Central Europe’s currencies despite the dovish stance of most of the region’s central banks. Significance The zloty has shot up against the euro this year; the koruna has strengthened sharply in response to the removal by the Czech National Bank (CNB) of its euro rate cap; even the forint has firmed by 2.2% against the euro since mid-December. Central Europe’s currencies are benefiting from reflationary pressures (particularly in the Czech Republic), inflows into equity and local bond markets, and positive sentiment towards developing economies. Impacts The 40-bp fall in 10-year US Treasury yields since mid-March will buoy world equity markets and encourage more exposure to EM ‘risk assets’. The 6% fall in the dollar index against a basket of currencies since early January is contributing to sharp euro and yen rises. Germany’s economy is performing strongly, in the first quarter enjoying its fastest growth rate in a year. This is underpinning expansion in Central Europe’s economies, particularly in Hungary and the Czech Republic.

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