(Bloomberg) -- Central banks are meeting in the next three weeks in eastern European Union countries that have diverged in their approach to interest rates.
The Czech Republic became Europe’s first nation to raise rates in 2017 and Romania followed soon after. Both may continue to push borrowing costs higher this year or in early 2019. In contrast, Poland and Hungary look destined for a different tack in the medium term, hunkering down in wait-and-see mode as moribund inflation allows rates to stay at record lows for longer.
“We’ve got two camps: Poland and Hungary being really dovish and suggesting rates may remain unchanged by 2020,” Guillaume Tresca, a senior emerging-markets strategist at Credit Agricole, said by phone. “More rate hikes are expected in the Czech Republic and Romania this year.”
These are some of the considerations for the region’s central bankers.
Hungary on Hold
The National Bank of Hungary will probably confirm its dovish bias at a meeting on March 27, with updated economic forecasts likely showing no signs of excessive inflationary pressures. Consumer-price growth slowed to 1.9 percent in February, falling below the lower edge of the central bank’s tolerance band. The monetary authority, which expects inflation to pick up by year-end, will keep its benchmark unchanged at 0.9 percent.
Policy makers will stick to unconventional easing, according to Raiffeisen Bank analyst Gergely Palffy. Deputy Governor Marton Nagy has pledged to keep short-term borrowing costs near zero until end-2019 and offer about 300 billion forint ($1.2 billion) worth of interest-rate swaps each quarter in 2018 to push long-term lending yields lower.
Czechs in Coasting Mode
The Czechs will probably stand pat when they meet on March 29, keeping the main rate at 0.75 percent. That would follow three hikes and a world-beating currency rally that delivered monetary tightening equivalent of as much as to 2.25 percentage points in interest rates, deputy central bank Governor Vladimir Tomsik said last week. The bank can afford “a bit of a timeout” until near end-year or early 2019 so it can wait for the euro zone’s monetary policy to start moving in the same direction, he said.
Rate setters want to avoid racing too far ahead of borrowing costs in the euro zone, as that could trigger excessive koruna appreciation.
Romanian Price Spike
Romania’s central bank, which will meet April 4, has reason to continue tightening after inflation jumped to 4.7 percent in February, the highest since 2013. Following two consecutive hikes that raised the benchmark to 2.25 percent, economists expect at least two more by end-year, according to a Bloomberg survey. Price growth is seen peaking at around 5 percent and returning to the 1.5 percent to 3.5 percent target band by then.
“Inflation will remain above the target until the autumn and decrease afterwards,” Eugen Sinca, a Bucharest-based economist at Erste Group Bank AG said by email. “We think that the central bank will deliver two more hikes in the policy rate to 2.75 percent this year.”
Poland’s Wait-and-See Approach
Poland will hold its benchmark at a record-low 1.5 percent when its central bank meets next on April 10-11. Governor Adam Glapinski reiterated his long-held view this month that there’s no need for any change in the rate-setting panel’s wait-and-see bias -- maybe even until 2020 -- as inflation remains in check despite robust economic growth.
In February, consumer-price growth fell below the lower end of the central bank’s tolerance band for the first time since 2016, signaling that inflation remains immune to pressure from a tight labor market. The bank revised down its inflation outlook for this year to 2.1 percent.
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