EEMEA Update: NBP to remain on hold, Russia and Turkey inflation will be in focus

PMI readings in CEE is expected to remain at expansionary territory, echoing the upward trend in German PMI. CEE currencies would likely experience appreciation pressures against EUR in the near term, as the prospects of more easing from ECB is now higher. In Russia, PMI likely declined as falling oil prices pressured the economy. In Turkey, PMI is expected to fall below 50, reflecting the negative effect of rising political uncertainty.

In Poland, NBP will likely stick with its forward guidance and remain on hold in its Wednesday MPC meeting. Over the forecast horizon, cuts are possible if inflation remains below target for an extended period and growth weakens. But, the next move is more likely to be a hike. If NBP maintains its "on hold" strategy, PLN will likely see appreciation pressure vs EUR given the increasing likelihood of further ECB easing.

Inflation in Turkey (Thursday) is expected to rise toward 7.0% y/y (consensus: 6.8% y/y) in August, as currency depreciation will likely feed into prices. The near-term inflation profile looked favorable in Q3; however, recent depreciation in TRY seems to work against this. Given the investor skepticism about monetary policy, currency reaction to an upside surprise in inflation would likely be negative.

In Russia, inflation is expected to resume declining in August (Friday) after rising in July due to utility price increases. Even though the RUB has depreciated, inflation pass-through has been limited so far. However, further RUB depreciation could pose a risk to inflation. This implies that a further CBR cut at its September MPC meeting could be ill advised, as it might lead to more RUB depreciation that could boost inflation. 

"We switched our forecast to no change, projecting that the CBR will keep its rate at 11%", notes Barclays.