“FAZ” on inflation and interest rates in the east of the EU: “The end of hawkish policy”

Interest rates in the east of the European Union have reached levels that have not been seen for a long time this year. However, at the end of the year, despite double-digit indicators, central banks outside the eurozone see no reason to turn the screw further and raise interest rates, writes the Frankfurter Allgemeine Zeitung on Thursday, December 22.

Inflation and interest rates. End of hawkish politics

The central banks of Poland, the Czech Republic, Hungary and Romania started to raise in mid-2021, much earlier than the European Central Bank. Despite this, they struggle with high inflation. In Poland, the key interest rate has been at 6.75 percent since September, and inflation has recently fallen slightly to 17.4 percent. However, FAZ notes that due to weakening economic activity, management is now arguing over whether further rate hikes are bearable.

Also in the Czech Republic, the central bank left the key interest rate unchanged at 7 percent this week, where it has been since June. FAZ estimates that the time of “hawkish” interest rate policy has come to an end there, at the latest since the assumption of office by acting central bank governor Ales Michl in the summer. On the occasion of his appointment, Michl confirmed that the highest priority of the national bank is to significantly reduce inflation from the last level of 16.2 percent. The first positive results of the policy of the new management board of the bank are to be seen in the spring, “when inflation starts to fall”, he said.

“Interesting options for investors” in the east of the EU

Hungary’s central bank also left its key interest rate unchanged this week and has been at 13% since October. However, FAZ cites Commerzbank’s analysis and writes of a “complicated interest rate corridor” that makes Hungarian policy all the more opaque. In November, inflation in Hungary amounted to 22.5 percent, “but this is probably far from the end,” FAZ estimates.

“Frankfurter Allgemeine Zeitung” writes that “interesting options for investors” are opening up in the east of the EU, especially since interest rates are unlikely to fall until the end of 2023. For example, Czech government bonds currently yield up to 7 percent, and Hungarian ones reach even double digits.