Look to East EU for Movement as Monetary-Policy World Hits Pause

(Bloomberg) -- As major central banks scale back plans to raise interest rates amid signs of a weaker economic expansion, some parts of eastern Europe are set to push for measures to cool price growth.

Hungary will kick off the deliberations Tuesday by starting to unwind its monetary stimulus. Two days later, the Czech Republic will debate whether to resume raising interest rates. While Poland and Romania are both likely to hold rates the following week, talk of rate hikes is returning.

Hungary, March 26:

• Overnight deposit rate: -0.15 percent
• Inflation rate: 3.1 percent (February)

While most economists expect a cut in stimulus, analysts are evenly split on whether a hike in the overnight deposit rate is coming as well. No one expects a move in the three-month benchmark. After core inflation exceeded the target in February, the European Central Bank’s decision to add to its own stimulus and the Federal Reserve saying it may stop hiking has tempered the outlook for tightening.

The central bank "has reached the point of no return" and will start tightening, ING analyst Peter Virovacz said. "However, we see rather a dovish hike from the NBH with a lack of pre-commitment" for further action.

Czech Republic, March 28:

• Two-week repurchase rate: 1.75 percent
• Inflation rate: 2.7 percent (February)

After holding rates for two meetings, Czech policy makers sent mixed signals about how much further tightening might be needed this year. Rate setters who are more sensitive to risks from abroad will argue to keep borrowing costs unchanged, while those focusing on domestic price pressures may push for another increase.

“Although we think policymakers are still in tightening mode, divergent signals will likely tip the balance in favor of leaving rates on hold,” said Marcin Kujawski, an analyst at Nomura International Plc in London. He sees “the most ardent hawks” on the board, Vojtech Benda and Ales Michl, voting for a hike again.

Romania, April 2:

• Benchmark rate: 2.5 percent
• Inflation rate: 3.8 percent (February)

The Romanian central bank is expected to extend its pause on borrowing costs after hiking three times in 2018. Rate setters will probably stand pat despite an inflation rebound in February because of uncertainty over the government’s plan for new taxes in the energy and telecommunications sectors. After months of clashes with the central bank, the cabinet is close to easing a controversial bank levy and an overhaul of the private-pension system, which may provide more clarity about the plan’s impact on inflation and monetary policy.

Poland, April 3:

• One-week reference rate: 1.5 percent
• Inflation rate: 1.2 percent (February)

Poland, which last month entered its fifth year without touching its record-low benchmark rate, will extend the pause as inflation stays below the lower end of the tolerance band. Price growth has undershot the 2.5 percent target for six years, even as the European Union’s largest eastern economy expanded 5.1 percent in 2018. A 40 billion zloty ($10.5 billion) fiscal-stimulus package and more dovish outlook worldwide has cooled a debate over whether the next rate move could be down instead of up.

--With assistance from Adrian Krajewski, Marton Eder, Dorota Bartyzel, Irina Vilcu and Harumi Ichikura.

To contact the reporter on this story: Peter Laca in Prague at placa@bloomberg.net

To contact the editors responsible for this story: Balazs Penz at bpenz@bloomberg.net, Michael Winfrey, Andrew Langley

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