Europe’s Rate-Hike Rollercoaster Might Keep Going for Weeks
An increasingly desperate fight against inflation in some corners of Europe shows no sign of letting up, after multiple central banks around the continent delivered out-sized interest-rate hikes in the past month.
Away from the euro area with its sub-zero monetary policy and ongoing stimulus, and the Bank of England with its as-yet uncommitted approach to tightening, officials in much of the rest of the region are displaying increasing alarm, most recently with Iceland’s 50-basis point hike on Wednesday.
That followed Hungary’s doubled pace of increase on Tuesday, capping a series of weeks where central banks delivered moves remarkable for their aggression. Earlier this month, the Czechs confounded expectations by raising the benchmark there by 1.25 percentage point, after Polish and Russian hikes that were each 50 basis points more than anticipated.
With most of those monetary authorities due to meet again before the end of the year, further tightening might follow, as officials contend with multiple worries from raging housing booms to the threat of inflation fueled by spiking energy prices and global supply bottlenecks becoming entrenched.
“The central banks to the east of the euro area must act now and this rollercoaster isn’t over yet,” said Mikolaj Raczynski, chief investment officer at asset manager Noble Funds TFI SA in Warsaw. “They still have some way to go with hiking rates.”
The most anticipated outcome that day will be from the European Central Bank, which is poised to determine the future of its stimulus programs. Against the backdrop of tightening talk by smaller counterparts, its officials insist for now that inflation is transitory and that investor expectations for a rate increase next year are misplaced.
For Piotr Matys, a senior FX analyst at InTouch Capital Markets Ltd, central banks such as the ECB risk falling behind.
“Unlike the ECB, Fed and BOE, central banks in Prague and Budapest have entered a restrictive path a good half a year ago and have taken credible and relatively transparent positions,” he said. “The Czech National Bank in particular is a canary in the coal mine for central banks in developed countries.”
©2021 Bloomberg L.P.