CIS-4: Domestic resilience leads to softer rates outlook
The desk interprets the outlook for the CIS-4, particularly Armenia and Azerbaijan, as increasingly favorable due to domestic resilience amidst a backdrop of global inflationary pressures. Per the full note source, the recent performance indicates potential for softer monetary policies as Kazakhstan and Uzbekistan show weak CPI trends. This, alongside Armenia's stable political landscape and beneficial trade conditions for Azerbaijan due to higher fuel prices, suggests a continuing accommodative environment which contrasts with broader inflationary pressures.
What the desk is arguing
The resilience of domestic markets in the CIS-4 region is set against a generally inflationary global landscape, presenting the potential for softer interest rates. Per the full note source, the central banks in these regions may have room to maneuver, especially in Kazakhstan and Uzbekistan where CPI data is trending lower.
The commentary notes that Kazakhstan and Uzbekistan's softer CPI figures could create space for policy adjustments. With inflation rates moving within the 4-5% range in Armenia, alongside a supportive domestic environment, the Central Bank of Armenia is likely to maintain its policy rate unchanged at 6.50%, reinforcing our outlook.
Where it sits in our coverage
The consensus target for the Armenian dram against the US dollar sits at 1.075, with forecasts ranging between 1.04 and 1.12. Specific forecasts include: - jpmorgan targeting 1.10 by Mar26 - bofa suggesting a lower benchmark at 1.04 for the same date
Our viewpoint aligns closely with jpmorgan, placing us at the upper end of the range.
How other firms see it
Firms such as jpmorgan and goldmansachs share a relatively optimistic perspective on the Armenian dram, reflecting bullish attitudes towards its stability. Conversely, bofa holds a more bearish stance, advocating caution amidst the still-inflationary global backdrop.
Watch the interplay between USD/AMD, particularly how Armenia's political developments might shape the currency's trajectory. Relevant indicators such as inflation rates in the region will also be crucial for traders.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01Domestic resilience observed in CIS-4 economies supports a softer rates outlook.
- 02Kazakhstan and Uzbekistan's lower CPI provides room for dovish policy shifts.
- 03Armenian political stability post-elections fosters confidence in the dram.
- 04Azerbaijan benefits significantly from elevated fuel prices.
Market implications
Traders should monitor the 1.075 level for USD/AMD as a key pivot point. A sustained breach above could signal pressure, while support remains bolstered by the Central Bank's stable policy stance. The upcoming performance of CPI data will also be instrumental in shaping currency direction.
Risks to this view
A reversal in this outlook could occur if domestic inflation unexpectedly rises or if geopolitical tensions with Azerbaijan escalate significantly, prompting a need for swift monetary tightening. Any alterations in external trade dynamics, particularly with respect to energy prices, could also present risks to the current bullish thesis.
Articles CIS-4: Domestic resilience leads to softer rates outlook 10:35 Armenia Azerbaijan Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download A firmer commodity price outlook adds to the global inflation story, but CIS-4 remains mainly driven by domestic themes. Commodity exporters benefit from stronger buffers, while FX resilience and softer CPI in Kazakhstan and Uzbekistan leave room for a more accommodative rates outlook Dmitry Dolgin Resilient domestic dynamics in CIS‑4 contrast with a still‑inflationary global market backdrop Armenia: Election results suggest continuity The recent win for the ruling party in Armenia secures policy continuity. Still, the lack of a supermajority potentially complicates any constitutional changes needed to resolve tensions with Azerbaijan or ensure accession to the EU.
On the one hand, the risk of unresolved frictions with Azerbaijan remains a reason for caution on the dram after strengthening supported by portfolio inflows and the pickup in annualised net remittances inflow to around 7% of GDP. On the other hand, slower Armenia-EU progress lowers the near-term risk of Russian economic retaliation. Russia is responsible for at least 80% of Armenia’s gas imports, one-third of external trade and two-thirds of gross remittances inflows.
For now, it remains unclear whether the political narrative of Armenia-EU-Russia is actionable for markets. Against the backdrop of inconclusive foreign policy signals, strong currency performance so far, and benign CPI within the 4-5% year-on-year range, we expect the Central Bank of Armenia to keep the policy rate unchanged at 6.50% next week with a balanced medium-term outlook. Azerbaijan: Trade remains the key strength Azerbaijan remains the main beneficiary of elevated fuel prices, in line with our long-standing view .
For now, higher fuel income and broader energy diplomacy remain the key story. The recent news flow points to a continued focus on developing trade channels, as international investments into the country’s ACG field are being considered, a 15-year Absheron gas supply deal with Turkey has been signed, and the country’s Baku-Supsa route is gauged as Kazakhstan’s alternative export channel. We see our updated global view as a direct boost to Azerbaijan’s external and fiscal buffers, with the budget surplus now expected to reach 5% of GDP and the current account to total 11% of GDP in 2026.
Meanwhile, a relatively high exposure to CPI contagion from trading partners and lagging GDP activity growth remain factors to watch. Even fuel importing CIS countries have shown FX resilience to Middle East tensions Source: LSEG, CEIC, national sources, ING "> Source: LSEG, CEIC, national sources, ING Kazakhstan: Real rates remain high despite recent cut Higher oil prices are supportive of Kazakhstan’s current account and budget as well, but the more important story is domestic. Despite the recent correction, the outlook for the tenge still appears to be supported by non-oil export proceeds and portfolio inflows, which should help cushion imported inflation risks.
This matters because stronger FX, combined with still-high real rates, lowers the need to turn more hawkish even as the global inflation backdrop worsens. After last week’s surprising 100bp cut , the next decision is more likely to be a hold, but the scope for further easing still exists in the medium term, in our view, especially if KZT remains supported by trade and capital flows. Uzbekistan: Constructive view on UZS reaffirmed, rate outlook improved Uzbekistan’s domestic story continues to improve.
The restart of gold exports since April , together with portfolio inflows linked to the privatisation pipeline and improved sovereign rating prospects, is supporting the soum again. UZS has strengthened by around 1% since the outbreak of the Iran war despite a 15-20% correction in the gold price. Combined with apparent fiscal consolidation, this has helped push the inflation rate down by 1.8ppt since the start of the year to 5.5% year-on-year in May.
In our view, there is room for the Central Bank of Uzbekistan to cut the policy rate from 14.00% at next week’s meeting, contrary to global trends. Rates Monthly Economic Update FX Current account CPI CIS sovereigns Budget Content Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument.
Read more Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download Author Dmitry Dolgin Chief Economist, CIS Dmitry is a Chief Economist covering Russia and CIS countries. He joined ING in 2018 and has a decade of experience in macroeconomics and FX strategy with Alfa-Bank and Gazprombank. Dmitry… In this article Armenia: Election results suggest continuity Azerbaijan: Trade remains the key strength Kazakhstan: Real rates remain high despite recent cut Uzbekistan: Constructive view on UZS reaffirmed, rate outlook improved
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