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Negative Real Rates To Weigh On Local Currencies

CEE
  • In the past two months, we have seen that despite aggressive hikes from CEE central banks (NBP and CNB), local currencies have remained weak against the US Dollar.
  • With some investors already speculating that the Fed will accelerate its tapering (recently announced at 15bn USD per month) to start hiking rates in H2 2022, demand for the US Dollar may remain strong in the coming months.
  • In addition, negative real yields may also weigh on CEE currencies in the near to medium term, which would continue to support inflation expectations.
  • As a reminder, the CEE region currently offers the lowest 10Y real yields among the EM world (after PPI-adjusted China), with Poland 10Y real rate falling to -4% following the recent positive surprise in inflation.
  • The chart below ranks the 10Y real yields among the most liquid EM economies, adjusted by CPI inflation.

Source: Bloomberg/MNI

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