The twenty-eighth week of the second year of the war demonstrated stabilization of business expectations close to the neutral level. The BOP was in surplus in July, while the trend on external trade provides solid worriers for the near-term future. The return to the pre-war taxation model allowed to improve budget revenues in August. The NBU governor stated not to tie NBU decisions on exchange rate policy to any meeting of its monetary committee. We expect the key rate to be lowered by 200bp to 20% next Thursday. |
As inflation is decreasing and the next interest rate decisions are ahead, central banks must not only decide on interest rates, but also if or in which manner they intend to intervene in FX markets. In this regard, we see different tendencies. In Romania, strong capital inflows support the currency. However, weak fundamentals cast a shadow on the EUR/RON exchange rate. In case of a strong weakening, the NBR has enough means to defend the currency. The SNB has been strengthening the Swiss franc for some time now to dampen inflation, while the CNB formally ended the intervention regime, triggering a slight weakening of the Czech koruna. In Albania, the strong performance of the lek in recent months led the Bank of Albania to announce interventions aiming to depreciate the currency, supporting exports. Recent turbulences considering the rouble sparked discussions between the CBR and the Ministry of Finance about the need for further FX market restrictions. In this risky global environment, central banks have their hands full. To intervene or not to intervene, that is the question. This issues features
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On the twenty-seventh week of the second year of the war cash FX market started to calm down after a recent moderate spike in the exchange rate. It seems the NBU has helped the cash market to get more balance through its decision to raise the potential for FC purchases through non-cash transactions. Consumers’ confidence stabilized in July after a solid drop in June. |
The prospect of a more prolonged violent military conflict in Ukraine has, in our view, non-trivial implications for the country's much-discussed reconstruction process. Here we think of timing, sectoral issues, regional disparities, and security aspects related to investments, the labor market, and institutional-political factors. |
This year has been a real roller coaster ride so far. While it started with euphoria after the worst-case scenarios concerning the energy crisis did not materialize and China's end to its zero-COVID policy, disillusion has now replaced the high hopes that accompanied China's reopening. Data in Europe and China lag behind expectations and fail to meet forecasts. The dollar and Swiss franc traditionally benefit from this environment, while the euro and yuan, as cyclical currencies, lose momentum. In Russia and Hungary, disappointing fundamental data also resulted in a weaker performance of the national currencies. The Serbian dinar defied this. Although geopolitical risks and economic data would actually argue against the dinar, foreign currency inflows continue to support it. This issues features:
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