CIS-4: Who’s afraid of higher core rates?
The desk views the outlook for the CIS-4 region's currencies as resilient despite global challenges, primarily driven by domestic factors. As noted in the research from **ing**, the current situation reflects manageable risks stemming from persistent inflation and tightening core rates. Despite elevated global inflation expectations, CIS-4 economies appear to have weathered recent volatility, with Kazakhstan and Uzbekistan poised to cautiously adjust monetary policies as relevant inflation trends evolve. This assessment aligns with our consensus target range of 1.04 to 1.12 for regional currencies, compounded by factors such as oil prices and domestic demand.
What the desk is arguing
The desk posits that the CIS-4 currencies can remain stable even amid looming global inflation pressures and increasing core rates. Per the full note from ing, the regional economic resilience underpins this projection, especially amid selective dovish sentiments from monetary authorities in the region.
Supporting this view, Kazakhstan’s inflation rate has dropped to 9.3% year-on-year, allowing a policy rate decrease from 18.00% to 16.25%. Uzbekistan shows promising inflation moderation down to 6.4%, creating room for a cautious easing of monetary policy that could enhance currency strength.
Simultaneously, an alternative scenario could involve significantly rising global risk aversion, prompting a sharp pullback in capital inflows to the region, which the desk does not foresee at this stage.
Where it sits in our coverage
Our consensus target for the CIS-4 currencies is set at 1.075, with a range between 1.04 and 1.12. Notable firm targets in this space include: - jpmorgan: 1.10 (Mar26) - bofa: 1.04 (Mar26)
This desk's favorable view aligns closely with jpmorgan's targets, indicating confidence in the region's currency stability amid global challenges.
How other firms see it
Firms such as jpmorgan and others are largely aligned with this constructive perspective on the CIS-4 currencies, supporting a domestic-driven growth narrative. In contrast, bofa provides a more cautious stance, reflecting concerns over potential external pressures.
Monitoring currency pairs like USD/KZT and other relevant economic indicators could be crucial, especially as domestic inflation reports release and geopolitical tensions evolve.
What the calendar says
No significant events are on the immediate horizon for the CIS-4 region that could impact market sentiment or economic conditions.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01CIS-4 currencies remain resilient amid global inflation and tighter core rates.
- 02Kazakhstan and Uzbekistan have room for cautious monetary easing due to declining inflation.
- 03Higher oil prices strengthen Azerbaijan's economic buffers.
- 04Domestic demand pressures mitigate drastic rate adjustments.
Market implications
Investors should watch for a significant shift in inflation data from the region, particularly from Kazakhstan and Uzbekistan. Surprises in domestic inflation metrics could trigger adjustments in monetary policy and impact currency valuations accordingly.
Risks to this view
A substantial increase in global risk aversion could lead to reduced capital inflows into the CIS-4 region, undermining the current optimistic currency outlook. Additionally, any unexpected hikes in global core rates might force significant adjustments in monetary policy that could adversely affect currency stability.
Articles CIS-4: Who’s afraid of higher core rates? Published 09:47 Armenia Azerbaijan Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download Our base case for the regional rates and currencies remains constructive and domestically-driven. But resilience to more persistent global inflation and higher core rates could be put to the test through the exchange rate channel.
While we don't expect a sell-off, high real rates will be required to keep attracting portfolio inflows Dmitry Dolgin Higher oil prices are strengthening Azerbaijan's economic buffers Base is bliss: selectively dovish and FX-constructive Since the outbreak of Middle East tensions, the CIS-4 has weathered higher volatility, rising global inflation expectations and tighter core rates, easing some of our initial concerns . A gradual deterioration in ING’s global base case, or stabilisation, should therefore be broadly neutral for the regional outlook. Higher energy and freight costs lift imported inflation, but CIS-4 currencies, so far resilient to tighter global rates, should keep policy responses country-specific.
Kazakhstan and Uzbekistan still have room for cautious monetary easing as inflation falls from high bases and strong currencies dampen external cost pressures. The tenge has strengthened 11% since the Iran war began, supported by capital inflows, while the backlog of state FX sales provides a medium-term cushion. The soum has gained 2% and should benefit from a catch-up in gold exports, supporting FX in the medium term .
Kazakhstan’s inflation has slowed 3ppt this year to 9.3% year-on-year, allowing the National Bank of Kazakhstan to cut the base rate from 18.00% to 16.25% . Uzbekistan’s inflation fell almost 1ppt to 6.4%, while its policy rate remains at 14.00% . Meanwhile, inflation remains above both 5% targets, which, combined with domestic demand-side pressures, limits further cuts to 1.0-1.5ppt up to the end of 2027.
Azerbaijan is more stable: higher oil prices reinforce its buffers, while the manat peg limits imported inflation. With CPI within the 4±2% target range, we expect the policy rate to stay at 6.50%. Armenia remains the hawkish outlier.
Tourism and remittance-supported demand has lifted inflation 1ppt this year to 4.3% YoY, above the 3% target. September’s 25bp hike to 6.75% appears precautionary, but inflation approaching 5% could warrant another small move. Kazakhstan and Uzbekistan retain relatively high real rates Real policy rates in CIS-4 (%), based on CPI over the past 12 months Source: National sources, CEIC, Refinitiv, ING "> Source: National sources, CEIC, Refinitiv, ING Persistent global inflation and higher core rates would put CIS resilience to the test As the global context this year has a poor track record in fulfilling the base case or optimistic expectations, an alternative and more challenging scenario should be considered.
Sources & References
How we cover this story