Policymakers in Central Europe double down on hawkish message in past two weeks

PRAGUE: Central bankers across central Europe have doubled down on their hawkish policy messages in the past two weeks in a bid to persuade investors to ditch bets that they will soon begin an easing cycle, and their message is starting to gain traction, Reuters

reported.

Their policy warnings come despite a European market downturn in the wake of Credit Suisse’ demise, which raised bets that global banks would begin to ease monetary

policy.

As central Europe’s central banks were faster than their major peers to hike rates, they had also been expected to lead the way in easing. While this may still be true, it now looks like happening later than previously thought.

But that narrative is changing, with factors such as tight labour markets and solid wage growth across the region playing their part, and investors are starting to catch on.

“High wage pressure will keep core inflation elevated and may lead to delayed monetary easing compared to current expectations,” Erste Bank said in a note on Thursday.

The Czech central bank, which had been seen as dovish under its new leadership and has refused to hike rates since last June despite calls to do so from its own monetary department and outside analysts, has in fact firmed up its hawkish messaging. Its Hungarian counterpart, which some had thought would start easing in March, has instead pledged to keep rates unchanged for a prolonged period to quash inflation expectations - price growth in Hungary may have dipped in Februarty, but it remains eye-wateringly high 25.4 per cent.