Webinar: Directional Economics CEE – who breaks, who bends on Energy Shock 2.0

Hello everyone and welcome to this latest webinar from ING talking you through or the content of our recently released Directional Economics publication. delighted to say I'm joined by a great team of authors who put so much content into that. publication and I'm going to introduce them by the order of appearance today. We're going to have three sections today and the first section really delve into the lead article, the energy shock and the lead author. There is a Valentin Tatru joining me. studio here today. Welcome to London, Valentin. Also Dimitri Dolgin, chief economist in the CIS, obviously CIS with its So exposure to energy, very relevant here. Our next block of content will really be looking at all the excitement in emerging markets at the moment. The change of government in Hungary, so I'm joined by our chief economist. in Hungary, Peter Viravac. Welcome, Peter. And also we have some comments on that from Poland's experience with the change of government in 2023. And we've got Adam Antoniak, Derrym Warsaw with us. So welcome, Adam, as well. The final section, I think really interesting at the moment. with central bank policy tightening priced in the markets and ING view. we're not going to deliver is that central banks won't deliver on that. If they were, would it be a policy mistake? So we're going to discuss that with David Havilland in Prague, our chief... Czech economist also again with Adam in Poland and also Mohamed Mekan in Istanbul, our chief Turkey economist. So yeah, without further ado, let's go over to No, actually, we're going to start with a poll. Sorry about that. Yeah, let's have the poll and... So Eastern Europe. very energy intensive region. manufacturing obviously a big part of it. for some some are more diversified economies, which... economies do you think in terms of activity is going to be hit the most by this year's energy shock. So I'll let you guys respond to that. poll and then we'll go first of all then to your valentine with a question so energy prices. Are they the same for everyone? There might be some sort of installations with... you know, tax benefits or whatever, or subsidies or whatever, but. You know how you know you wrote the article How do you think the different countries are impacted by the shock? Some winners, some losers? Yeah, what are your key thoughts here? Yeah, so I think this is the right starting point because indeed the The price may be global, but the ability to absorb it is very much local. So in this region, I would say that the Czech Republic has entered this shock in the strongest position. you know, with low inflation, credible central bank. solid external balances and overall a better institutional stability, I would say. So for Czech, yeah, I think this is a serious headwind, but it's not. crisis. Then Poland, on the other hand, has a different kind of strength, which is growth. Growth is resilient in Poland. Consumption is holding. services are performing quite well but then Poland has a newer kind of problem, increasing one which is fiscal. the deficit is higher. public debt is kind of climbing again. So there is limited room to respond with public money as it was the case. back in 2022 Hunger is more complex. here because it comes after years of a few years of low growth. and it has a heavier gas exposure than its neighbors. right now also caught in the middle of a political transition which could unlock some EU funds and that that would help greatly, but this is more of a medium term story and it does not remove the near-term pressure. And Turkey, of course, it's a bit in a category of its own. It has the strongest exchange rate pass-through. It imports oil, gas, coal, so cross fuels and it does not have the EU institutional. backstop. So you can try to protect growth, contain inflation, defend the currency. but the trade-offs are sharper for Turkey. So the practical message here. to our listeners, presumably. the corporates and the FIs, I assume, would be that the country risk in the region. is becoming more differentiated in my view. So the same energy price. can produce very different outcomes depending on on policy credibility, on the fiscal space, on the structure of the economy. so it's not the CEE wide story I would say but very much a tree specific story. And obviously, like inflation is like the primary. meeting point the primary kind of challenge from this shock but what other kind of structures Natural burdens are there across you know, the regions, you know, flood. corporates you know policymakers society yes inflation is indeed the most the visible and the media channel. But I would argue that the deeper issue here is Actually competitiveness. Essentially this is the... the problem. So from this point of view, as we've seen in the previous chart, Sea and Turkey. are significantly more energy intensive than than western europe the u.s a whole has reduced its energy intensity over a decade so from 20 14 to 2024 by roughly a quarter, but most the economy are. either above or well above the EU average. so this means that the same Euro of energy input carries more weight into production. and cost into margins into external balances what have you So. That's one thing. And then the composition of the exposure matters as well, because you look at Poland and Czechia and they carry a heavier burden from cold. and from carbon costs including the EU ETS. Then Hungary has a vulnerability that runs mostly through the gas channel. which translates into the industry, it impacts the industry, but also the electricity. prices and then of course turkey has the as you mentioned, has the broadest exposure because it imports across fuels and then there's also the exchange rate effect that can amplify the shock into the domestic prices very quickly. Peace out. For our listeners, again, I would frame it this way. The biggest burden falls on firms that have high energy use, thin margins and cannot pass. costs easily to consumers. So we are talking here about... metals, chemicals, fertilizers. particularly can be transportation equipment, can be logistics, energy intensive manufacturing at large. I would say many of these firms were already financially stretched. going into this shock. So now this shock can actually tip them from cutting their margins to cutting their investments. which will of course become a problem of competitiveness. and we are back to the competitiveness issue which i think is the root issue here And then from a financial institution angle, what starts as a... the macro story can quickly become a credit story as margin compresses, cash flow weakens. and so on. Investment is postponed, of course, and when investment falls, then productivity is taxed. So it creates. a lower growth, not just now, but also at a later stage. So These will be the main points and the final angle here. which I think it's a bit underappreciated. It's a near shoring angle, I would say. Because CE always had like a very compelling story. Skill labor. large industrial base, access to Western markets. and pretty good infrastructure connectivity to the western markets. But the next wave of investments, in my view, will go to locations. which can also guarantee safe and affordable energy. So again, it becomes a competitiveness issue. If energy remains expensive and volatile, it will erode the advantages that made this region attractive. in the first place. Okay and yeah one final question on this subject. So policymakers can do something, obviously, if you talk about kind of fiscal and... obviously we'll talk monetary policy later. There's something they can do, there's some things they can't do. You talk about that in the article. Yeah, well, the simple answer is that The policy can reduce the damage, but it cannot make the shock disappear, obviously. So speaking of policy, we're looking at... monetary and fiscal on the monetary policy side. I think policymakers are in a very difficult position. because in a standard supply shock You would expect central banks to look through the the first round of price effects and then react only if... inflation expectations start to drift. But after the 2022 experience, when they kind of reacted late. I think that no central bank can afford to. to look relaxed anymore. So, easy. is kind of difficult but then tightening is also difficult. because you are tightening into an already fragile economy. which carries its own risk, of course. And this is a genuinely difficult position to be in for a policymaker. Yeah, we're going to be talking about that with... David later the monetary side yeah and then the fiscal side And it's even worse, I would say, because it has a lot less room than it did back then. in 2022 when governments back then deployed the broad energy price shields. which helped households greatly. but they were expensive and in many cases only delayed the inflation adjustment. So this fiscal room is not available today. and the fiscal space is generally narrower through the region. So what can policy do? I would mention three things. Firstly, it can protect the most vulnerable. Yep. but it should resist the temptation to to freeze the whole price system. Of course, that broad subsidies are politically. attractive, but they are costly. Second, it can channel EU money into investment. So you have here EU instruments, cohesion funds, RRF, safe to some extent. that can finance energy grid, renewables, efficiency, infrastructure and so on. and this will reduce the economies. sensitivity to future shocks. or if EU money are used Let's say they can just buy some time. And the third, and this is I think the most important message for our audience. policy can treat energy as industrial. policy. So energy resilience. in my view, is not is no longer only a technical issue or a climate issue. it is becoming a competitiveness issue. So it affects where investment goes, it affects how supply chains are structured. It affects how credit risk is assessed. So countries that move faster on permitting on grids, on renewables. are better positioned. Those that rely on price controls. And okay, they can protect the consumer for a while, but at the cost of longer term competitiveness. And then finally, what policy cannot do. I think it's equally important to shout out loud. It obviously cannot absorb. global oil shock. Nor it can shield every household, every firm, every balance sheet. in the economy if markets begin to see that governments rely on short term price fixes at the expense of medium and long term planning, let's say, I think that the cost of the shockwave increase and the cost. is born by everyone, including by the businesses and institutions that are part of our audience. Okay, great. That's very interesting. Thanks very much, Valentin. I'm going to now go to Dimitri. Chief Economist for the CIS. So we know places like Azerbaijan and Kazakhstan are bigger oil exporters. Some letting better than some others or are they it's not Perhaps not quite as simple as that, Dimitri. Yeah, so CIS is indeed a bit different to CEE, but there are some similarities too. And well, the energy is a very important channel, but but not the only one so there are other channels of impact such as inflation for example and there are country specific story. So we've sort of tried to visualize this by country and channel. here. And so I will just briefly go through the three channels. So the first channel is energy, and this is quite straightforward. and mostly opposite to CE. Azerbaijan and Kazakhstan are clear beneficiaries as exporters. Stronger oil prices feed directly into export revenues. and budget revenues so this is a meaningful positive for both. That said, Armenia and Uzbekistan are energy importers. for whom oil is a drag. But in both cases, the impact is for them cushioned by other financial inflows, whether This is remittances, tourism or portfolio investment. I'll come back to that in a minute. So the pressure overall is there, but it's not critical. The second channel is inflation. And this is where the CIS looks actually quite similar to to see, but in a slightly different way. Here, energy prices are often regulated or subsidized domestically. So the pressure doesn't come directly from oil. Instead, it comes through imports. So when, for example, global prices rise, particularly food, That feeds into domestic inflation. But importantly, this is a cost-driven shop. So for central banks, the question is less about rate hikes and more about being cautious about second round So far, communication reflects this cautious approach. And finally, there is this third channel, which is, I would say, broadly domestic. stories. The financial markets in the CIS are being driven more by them, by domestic factors, domestic and country-specific stories, rather than a global. In Armenia there are strong remittances and portfolio investment inflows. and they are keeping the currency firm even despite the higher oil imports. However, the upcoming elections in June Our key risk factor because the ongoing peace process with Azerbaijan might be affected by it. We are hoping that it will not. In Azerbaijan, the currency pack which is in place looks more secure thanks to high oil with a focus shifting to diversification of domestic activity and and exports over time. In Kazakhstan, the currency is also well supported. but interestingly not much by oil as you would expect it to be. but largely by portfolio inflows linked to upcoming euro clear access and new debt issues with sustainability being the key question. And finally, in Uzbekistan, higher energy costs. should be offset by gold exports. reports, which may restart soon after a six month pause. and portfolio inflows into the privatization story. So overall, the CIS4 is holding up quite well. Markets are relatively robust and supported by domestic factors. The key question for investors is whether this environment is used. by the governments to push structural reforms and build some foundation for a long-term investor Friendly story. That's great, Dimitri. Thanks very much. Let's actually go back to the poll results in terms of which countries actually... activity was going to be hit the most and well, interesting kind of hungry. the harder that yeah I thought perhaps Turkey might have been there personally but interesting that you guys think Hungary is in the forefront and will come to. Peter very shortly. So shortly, in fact, he will be here now to discuss... What's going on in Hungary regarding the government change? I think as well, we might be joined as well by our chief economist in Poland, Rafa Banetski as well. Brilliant. Hi, welcome, Rafa. So this section, we're going to be talking about hunger is changing. government all the excitement about close relations with the EU. maybe even neuro adoption. and also perhaps what it can learn from Poland, which had a change of government. in 2023. But to start this section, let's have a quick poll. The million euro question. poll um yes or no does hungary adopt the euro by 2031 remember four-year term for Hungarian Parliament, so maybe by 2030. Will they have done enough? Have they the commitment to do enough? To join the Euro in 2031. What do you think? Right, let's start off, Peter. So what are the main challenges this year, Peter? Obviously, so much interest in Hungary right now. Perhaps not as quite easy as it looks on the tin. Definitely. So there are a lot of challenges ahead of the new government. And yeah, as we heard from Valentin and as we... as we've seen from the poll results indeed. this kind of energy shock. no matter who is the prime minister and which party is making up the government. So altogether, this will be a pretty, pretty... tough situation. But first of all, what the new government needs to do, in my opinion. that they need to find, let's say, easy ways to reduce the expenditure side. of the budget because the fiscal story is one of the key elements, of course, not just the Euro adoption. but with the whole economic situation as well. So of course, We can talk about unnecessary or levy spending. We can talk about a lot of advisory agreements, fiscal sponsorships. you name it so so all together i think there are ways uh to to cut back on the expenditure side but but the main question is whether are we talking about 10 billion, 100 billion or 1,000 billion foreign. So We still don't know, but definitely this will be the must. to do on the checklist for the new government. Then, of course, maybe not the second most important, but let's say 1A, 1B. be the EU funds. So. Budapest and Brussels needs to find some compromises finally. to meet all the 27 milestones to just comply. So Hungary must comply. with all the rule of law stories. And if this is happening, just be aware. The timeline is pretty tight. especially for the RF because end of August, end of September, Hungary needs to prove that they managed to make enough changes. that it can push the defrost button, practically speaking. How much is that? So altogether, we are talking about 7 billion euros from the Key Asian Fund. which can be used for the next three to four years. We are talking about 10.4 billion. from the rf and of course this could be or most of it according to recent you have Can you hear me? Hopefully you can still hear me guys. So. So from there, from there are more than 10 billion euro. is there and from the safe funds roughly 16 billion is at stake so really a ton of money is available for the new government if they are able to meet with all the requirements. And of course they need to maintain and manage the positive momentum which is there. for the for the market so they just don't abuse it. That would be the number one story. They need the stronger foreign. They need to to keep the debt service cost at bay. and lower yields are clearly helping. in that aspect and of course The government needs to come up with a credible long-term macro and fiscal plan just to convince the markets that indeed there are enough progress. to be made for your adoption maybe. for 2013 or 2031 we will see but yeah definitely The checklist is pretty pretty long. Okay, it seems the So let's start with the second topic Indeed. So what we can learn from Poland, whether there are some parallels. in between Hungary and Poland. and what's the main storylines there with politics now. And it seems we lost Rafal as well. So maybe Adam? If you can jump in that would be lovely. Okay, it seems that we lost the... control all together so in the meantime as we are trying to move back Let's go to the questions side and what I see here there's a question about the strength of the foreign and And obviously, for me, that's a really important question. because and that was one of one of the questions what what Chris wanted to talk about. So So definitely there is the plan, but how realistic is that? and what's the rule. of the 4int in that. So first of all, I guess on the fiscal side, the starting point is looking pretty bad. from a fiscal perspective, the debt to GDP ratio hit a four-year high level. at the end of the first quarter, meaning that it was 77.9%. percent of GDP. So definitely not the dream scenario for a new government. The first quarter deficit, the cash flow deficit was also higher than planned and also the mastery. deficit was definitely higher. So by the by the end of this year. I guess the Hungarian economy or the Hungarian government. will face another year with a rising debt-to-GDP ratio, not ideal. That's for sure. And probably a 6% to 7% of GDP deficit instead of the planned. five. So altogether, this is a starting point. And if you want to adopt. to euro definitely you need to tighten up the Fisca story, but But you know if the government will be able to use the EU funds if they will be we'll be able to pull the trigger on all the EU funds. definitely this can be this can be pretty manageable, let's put it that way. and it can help the budget from a cash flow perspective as well as from debt. financing perspective. You need to be aware as well that The debt service cost in Hungary is around 5% of the GDP, so the primary balance. is not that bad in Hungary eventually. So the cycle, the economic cycle wasn't being helpful as well. As Valentin mentioned at the first remarks that But yeah, Hungary has had three years of stagnation, definitely. and definitely did not help the budgetary situation. So all together. I guess if the new government will be able to cut back on the debt service cost, definitely it can help us. And... And, um... Obviously this will be task number one. And in the meantime, it seems London is back and Rafa is back. So let's move back to London. Yes, sorry, apologies everyone. We had a few technical issues in there. London. In terms of where we are in the agenda, Peter, please. So actually I moved on question number two for me but also in the meantime we lost rafael as well so So I think let's circle back a bit to Poland. and then we can talk a bit about other challenges of your adoption. In Hungary. Yeah. Just, I'm not sure if I'm going to say... The uh, whether we can show a kind of that poll on that euro adoption. No, we can't know. Let's go to uh, Adam Adam, you've been listening to Peter there. I mean, what's the experience from... Poland then changing government Lots of kind of optimism about what's going to happen. What can Hungary learn from this? Let me step in because... Oh, here we are, Rafa. Okay. I'm back connected. Yeah. So the natural question is, This was the lesson for Hungary from experiences of Poland. We experienced the change of power in 2023. So this is a very specific. situation when one camp is winning second is defeated but the previous one was challenging rule of law, undermining institutional order and exhausting social agenda. So the new government is coming with this kind of environment. and expectations are really high. And so the experience is very difficult. to meet all these expectations i will go through the three groups and try to analyze their the review. So first of all, voters... They expect investigation and resolution of the misconduct. They also want to see restoring rule of law. and importantly they want to hold the same level of a social policy agenda as before. What is very difficult in this situation is that the the system in the country is frozen to some extent. There are political... People who are holding posts who... should be taken by independent civil servants. So it's very difficult to deliver on all these fronts. So the key... issue is to manage this expectation that progress is there but probably will be not as as quick as expected. The second group of important stakeholders are Financial markets, so they expect lower deficit. once again difficult to deliver because in the previous group I said people expect the same level of the social agenda so steps on the fiscal side are very small and and the strategy relies mainly on growth than on the cutting spending And the third group of stakeholders are corporates. They expect clear regulation. They expect stabilization of the regulatory environment and lower taxes. also very difficult to deliver because as I said before the countries operating in the situation of the elevated social agenda. usually high deficit. And in order to have To tackle the deficit, the tax collection system should be rigorous. And also at the same time, taxes cannot be cut because once again fiscal policy is expansionary. So in this kind of situation, with expectations so elevated is very difficult to not deliver on all these fronts and the key message to the to the new ruling camp is to manage expectations properly present the progress but definitely The make all the stakeholders aware that quick fixes are not possible. So that's the most important experience. for Peter, just very quick. Philippe. Peter, we've got the pov- The So I don't think we can kind of show. them but um poll results for Yes. and In terms of Hungary joining the Euro by 2031, 42%. Sent. No, 58%. Does that surprise you? Quick. comments to make that Let's move on. which is a central bank policy. So you're... David, please bail me out here. Oh yeah. Okay, it seems... Hi David. Tim. David, so you've got some experience. from central banks you've been working in the research department the ECB and the Czech National bank. You then worked at kind of Echofins, so you've seen it from a political perspective. Yeah, what are your thoughts about I mean, there are two key issues here. reviews on what central banks should do and us as analysts. Ultimately telling our customers what they will do. Perhaps you can share some of the mindsets. for policymakers and your own views on things. Thanks for the question, Chris. Hi everyone. So I believe that in central banking generally, there are only two situations that are easy and that's when you start a new hiking cycle when your economy starts to overheat. And second, when you cut rates. due to a negative global demand show Otherwise, anything else, any other situation has loose ends. and you will face trade-offs. And currently we face a global negative supply shock. when generally less is produced for higher prices. So after all, firms... they will face higher costs, there will be increased competition. compressed margins and fading profitability. On the side of households, When price level increases, real purchasing power erodes. Higher energy bills will at the end lower the scope for discretionary spending. So In this type of shock after the initial inflationary wave, you definitely will get some pressure for economic activity. And now the crucial question is how strong this pressure is going to be. And I'm more in the position. that the pressure on economic activity is going to be quite strong. and that the shock is long enough and strong enough. to cause havoc in most economies. So, in this type of situation... If you rise interest rates and you increase cost of capital. and make life more difficult for firms and households. then you really risk pushing the economy across the clay And then in the end effect As your economy is on your knees, you backtrack, you cut rates more than you would if you would have... been doing nothing and that's the policy mistake because suddenly your foreign exchange rate weakens You get more important inflation. and you face much more complex situation. than you did at the very beginning. So... I believe kind of the markets see definitely more rate hikes. but the scope for that is very limited. And the fact that we don't see kind of the pressure on economic... activity right now doesn't mean it will not arrive. soon enough. So The appropriate solution for most banks is to keep ...head school... do nothing and watch your situation. For sure, depending on the entry point. One hike doesn't matter and does not harm. Two hikes for most economies. in the region would be borderline. And anything more, I believe. is entering the monetary policy. mistake waters. Let's go to Adam in Poland. I mean, perhaps in the region... Puggin might be the closest. to a rapist. What do you think Adam? All action, Leven. The National Bank of Poland governor was quite clear on that topic during the press conference. In May, he laid the clear path for potential rate hikes if needed. And he said two preconditions. I mean, the first one would be inflation rising about the the upper bound of acceptable deviation. bound around the central bank target, in other words, inflation rising I think about three and a half percent and the second one would be the inflation remaining above that threshold over the medium term. So while the first one is quite easy and we think inflation will exceed 2.5% potentially even already in May. The second one is highly uncertain and that's the main decision point for policymakers because it's a strong base effect in the second quarter of 2027. We think the July meeting when the National Bank of Poland will present the new set. of projections will set the floor for the second half of the year for the discussion among the policymakers whether or not to tight monetary policy. So I think the general view is that The risk of rate hike has increased in Poland but at the same time I think we remain in the wait and see policy stance so far and our baseline scenario is that interest rates will remain unchanged. So the July meeting will be hot because it will set the stage for the second half of the year. And again, as already mentioned by David and... by Val, what really matters is is are we going to see a second round effects and broader impact on the level of prices? or maybe we're still in that stage of of pure supply side. shock. So for now, I think the debate on a potential rate hike is going to be hotter in the second half of the year but The baseline is for rates to stay unchanged. played by the book and treat the current situation as the pure supply side shock. Very interesting, especially given the market is priced 50 to 75. base points of tightening over the next 12 months or so. So, let's go to Turkey now, and Mohammed, The officials over there have been doing a great job. the disinflationary regime. many depreciation of the layer With higher oil prices, would they be prepared? to really increase interest rates aggressively. to hold the regime together. Thank you, Chris. I think our central bank is good at crisis management. Well, now they are in wait and see mode. following stabilization in reserve since early April. And in June, we shouldn't rule out possible token adjustments. in the post rate to a level of effective cost of funding. given increasing external and internal imbalances. But this wouldn't mean a tightening in the, you know, policy and when we look at the sample bank reaction function since the beginning of They have been prioritizing financial stability for the time being. And accordingly, for the central bank, To hike, you know, further, going forward. resource will be important, you know, given. the central bank's commitment to maintain, you know, a controlled pace of TRY depreciation going forward. And in that regard, I think central bank will be looking at three issues. three variables one the current account further spike in oil prices and no change. which in the current global risk outlook can you know weigh on uh the current account exit significantly going forward and also to create a negative impact further on the inflation outlook. So this is one variable. And the second variable is the capital account. The central bank will be watching. whether we will see uh for acceleration in the locals deposits ...wrote or unidentified households or, you know, changing... appetite of foreign investors towards Turkish assets. And third, locals' behavior will be quite key. Since the beginning of the war, we haven't seen any shift in their portfolio. preferences they maintain holding the TRO assets. But any signal of appetite for ethics going forward will be quite important. for the central bank overall i think reserves are quite important for the of rates going forward and when we get central bank signal given that they say everything is on the table. I think they do not want... possible to have a ray type, you know, depending on how things evolve going forward. But for the time being, they are trying to maintain policy flexibility in the case of you know of changing geopolitical back. Thanks, Maynard. Let's just wrap it up with you, David, just kind of finally any sort of last sort of final word on the subject of whether this tightening cycle pricing by the market you said probably not but yeah just any final thoughts Yeah, right. I think about it this way. I mean, the part that parts of the bones. currently price in Apple rate hikes and bank boards are complacent but In my experience, markets can be wrong. We see a lot of herd mentality and behavior. And the thing is, Everybody can be a hero and claim. that he will push the economy into recession wire. higher rates But this is in a situation when Hannibal is still not at the gates. And it's very different to do that. when the economy really starts to contract and to crumble. So pushing the economy into a recession is not a trivial thing because you can never be sure that it will recover. kind of on your command and We can remind ourselves about Machiavelli who says clearly you can choose when you stop a war. but you don't choose when to end it. And this is a similar thing. And in this type of thinking, I always ask myself, what it means if I'm completely wrong. And here I come to two conclusions. First, energy prices don't matter for real consumption and production at all. Second, interest rates and cost of capital don't matter either. So if economies continue to further harm Czechia has a 2.5% as per Czech National Bank. Euro zones at almost 1% as per ECB. E despite 40% higher crude oil prices. and potentially even higher capital costs. I would be really surprised. So we know almost everything can happen. but this would I would really be astonished But we know Estonian men drive our hunger for exploration. and it's good for our mental discipline. So let's see how it... plays out. I'm on the side. rate hikes have a lot of potential. to really push economies into to their knees and that's why it's not gonna. to happen. So stay tuned. Thank you, Chris. Sounds like your passion for exponents. exploration you'll be involved in SpaceX IPO perhaps? So, yes, we've got a few questions here. The first one in Poland. Raphael, if I can come to you in Poland, please. We've got a question from a guest... Back to some remarks Adam was making about Is there a particular CPI level that the mbp would say enough is enough we are gonna hike rates what do you think the trigger is from our perspective. Yes, so the trigger would be the sustainability of inflation at that's over three percent our working assumption is that if CPI will stay above upper bound for more than one year in the forecasts, then would be a trigger for hike. So in order to determine that, central bank We probably will look for the evidences of second rand effects. We closely analyze core inflation. if there are other things in the core rising than And for... airfare tickets or other things very closely connected with oil. So for example if there will be spreading of inflation to some goods, some services not closely connected with fuel. And of course, another angle would be looking at wages, wages claims, wages expectations. expectations and stuff like this so that will be the trigger to determine whether risk of sustainably free... high inflation is coming. But before that, the central bank will be quite cautious. And we do think July meeting is the the first live meeting but But we don't think the new projection will be negative enough to start hiking cycle. probably it's a matter of a third of months. which are more tricky and more life than July. Okay, great. Thanks very much, Rafa. I've got quite a few questions on Hungary, so over to you, Peter. um a lot of interest in the relationship between the strength and the font and whether you're a bitch. cut rates. So, question here. Does a Huff Strengthening gives the central bank space to lower interest rates in the second half. I heard the expected increase of inflation in the coming months and uncertainty about ...government measures affecting prices. What do you think? Well, obviously, stronger forint will give a better third chance for a move but please don't forget that the national bank of hungary has already done an effective rate cut When it decided cut the the Euro liquidity providing FX swaps. I mean, the interest rates on that by 50. basis points to 5.25%. percent So this was an effective rate cut and now the market is pricing in a rate cut. at least on the base rate until June. but altogether the room could be there but altogether I believe that there are a lot of a lot of options out there. a lot of risks so in may probably they won't cut the first option will be the June rate setting meeting after we are we are We are aware what the Fed and the ECB is done with their decision. We will have a bit more clarity on the inflation front, one more data. till that so altogether yes definitely there's a path for For a rate cut, we have two scenarios now. We are running on a conservative scenario as a base case with no rate cuts for this year. in Hungary, but we have an opportunistic scenario. whereas the national back of Hungary is trying to use the recent room of low inflation. really significantly lower yield environment. and the strength of the half to just go ahead. and cut once maybe twice before the inflation starts to move up. and in June the new inflation report will shut. a lot more light what the mbh thinks about the inflation path but i i think in general the new inflation report, the new projections will be dovish. so the market will have every opportunity. to price in further rate cuts so So yeah, I'm not saying it is coming for sure, but definitely it is on the table. Great. I've got a question about kind of ratings outlooks. And I think I'm going to actually go on kind of the regional basis because I know a lot of you guys... do speak to the rating agencies they come and visit you in your offices in the region I am So I'm going to start with the old team actually. It's your understanding of what you think ratings trends are. in or rather all across the region. Of course, I deal with Romania mainly. And also it's the most at risk being I've been having this native ad for a while now I think that we're basically has consumed a lot of good will that that it has accumulated over the last six to nine months. And maybe we'll answer to it. where the removal of the negative outlook was, yeah. Yeah, what's going on? I'm mad. That's that good while it's kind of gone. expect a downgrade. especially because any government that will be formed will have all the incentives in the world to keep the commitments with the EU in place. So it's a lot of money, 10 billion. the answer so left is the cohesion funds is the new work which will work more or less like we have with fiscal commitments or with reform milestones. and the law discuss execution of budget execution for dollar Looks good, and I think it's ready to go. FICO content because it's basically on So I don't expect a pretty solid budget execution and I think that we will have this right to think as well as the same negative output Okay, excellent. Thanks. Sure. HELLO perspectives on it. Let's get a quick picture of this video. Is it, this right, is this, is this a negative algorithm at the moment, or... What's your view, sir? How quickly... just very quickly if that's okay perspective Yeah, well, the next round is coming actually in the coming weeks. and it's too early days to let's say see the real actions. from the new government and I think rating agencies want proof and not promises but by the end of the year we can reach a point whereas The government did enough to unlock the EU funds, make institutional changes. have a credible plan for your adoption down the road. and some tightening or at least fiscal rebalancing. path. So yeah, I think it is possible to see that. at the at the end of this year to to see the reversal of the negative outlooks and maybe 2027 will be about credit upgrades for high- Interesting. Let's go to Poland and back to your career. Just very quickly, Poland is running very wide. Budget deficit at the moment. What's the views? You speak to a lot of rating agencies locally who come and visit you. What's the perspective Rafa Yeah, so the rating downgrade is price team by one to notice if you look at the asset swap If you look at the holding very low holding of foreign investors in polis It's not price in the FX debt. which is quite tight. We do think... I think the risk of real delivery of the downgrade is quite material. The last SNP review was exceptionally tolerant and presented that high level of the goodwill. As usual, as S&P says, Poland is surprising on the upside last 20 years and last two years is accumulating non-market debt is accumulating non-debt-creating external funding. So they still wait. probably 27 general elections tell us that there will be no fiscal adjustment. but the growth performance and and supply side Policy agenda looks quite decent, so... if Fib. If one notch downgrade happens, probably that will be consumed quite easily by the market. Okay, thanks. Let's go to Turkey next. Mohamed, what's the... Rating agencies take on target at the moment. Well... Following the war, start of the war, we have already seen a reaction from from which they have reduced the hierarchy rating out from positive to stable. And now I think rating agencies are currently in wait and see mode. because after all turkey is you know quite vulnerable to the show everyone is closely following the you know know how things will turn out. I think, you know, we haven't seen any rating action from the rating agencies for the time being until you know, they, you know, to understand how things will evolve on Turkey's side. Okay, thank you, Marnad. I suppose it's going to be very quick. Check the breakdown. Things looking okay? Looking you can hear me now good pretty stable pretty well because the fiscal position It's good to kind of check you entered this shock. in a very favorable position. Definitely we will see a bit lower real GDP. and a bit more spending because the government will try to mitigate the impacts. households, maybe for firms as well. I would expect some announcements at the end of the year. and we will see how this will impact. the deficit for sure. There'll be some kind of ...counter movement because of higher nominal GDP. but still I believe there will be a tendency to a bit higher fiscal deficits because of the consequences of the current job. Okay, thank you. And finally, we go to Dimitri on the CIS. I mean, anything to say about you in terms of... upgrades coming through Daytree? Yes, so the situation is very benign and we already had a A positive momentum for all the CIS4 in the last year, I think in particular. Uzbekistan had the most upgrades so far. I mean, there have been upgrades in Azerbaijan as well. well in kazakhstan and armenia there were increases in the outlook and that's before the outbreak of the war and the war itself in the middle east it doesn't affect uh material well obviously It's positive financially for the commodity exporters, but they're already kind of maxed out on their financial. criteria when it comes to sovereign credit because the They already rated higher than peers and with Armenia and Uzbekistan they're more driven. by domestic stories so without with armenia it's uh it's the peace process with azerbaijan and all the political all the political uh issues and with uzbekistan it's the it's the matter of of other factors and portfolio inflows and this. privatization story of fiscal consolidation so so investors are looking something domestic That's great. I think we can wrap it up there. Obviously, we're very much running out of time. Apologies for the technical glitches and thanks to some of you sticking with us for nearly a year and a half. I want to say, if you want to read that report and you haven't read it already, to our website, our website, on g. It's also an investment research version of it. markets research website if you take a look there. So just leaves me to think. Um, uh, speaker's day really interesting and uh we're doing that again probably in october with the next release of directional so many thanks and speak See you soon.