Rates may stay high in Eastern Europe for many months

Significance

Rising tensions over monetary policy in Central-Eastern Europe have burst into the open in Poland. The National Bank of Poland (NBP)’s controversial decision to halt a year-long campaign of interest rate hikes despite the fastest rise in inflation in 26 years triggered fierce dissent from a minority on the ten-strong Monetary Policy Council (MPC).

Impacts

• Rising inflation in the euro-area in October is heaping pressure on the ECB to make a third straight 0.75-percentage-point hike next month.
• Capital flows to emerging markets (EM) are starting to recover due to hints that the Federal Reserve might slow the pace of rate hikes.
• Current account balances are deteriorating in the main economies of Central-Eastern Europe, particularly in Hungary and Romania.