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Central Europe's rate-setters have pause for thought



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Inflation rebound looms in central Europe

Price risks from services, fuel and weaker currencies

Central European FX squeezed by broad dollar gains

Investors scale back rate easing bets for end-2024

By Gergely Szakacs and Jan Lopatka

BUDAPEST/PRAGUE, April 29 (Reuters) -With steep falls in inflation over and the timing of the first Federal Reserve rate cut pushed back by strong U.S. data, a period of carefree rate easing appears to be over for central Europe's rate-setters now facing a growing list of concerns.

A collapse in price growth from last year's double-digit rates in Poland, the Czech Republic and Hungary allowed central banks to reduce borrowing costs sharply, helping their economies back to growth from recession or stagflation.

March headline inflation sank to 2% in Poland and the Czech Republic and 3.6% in Hungary, which experienced the worst inflationary surge in the European Union with levels exceeding 25% in the first quarter of last year.

But economists believe the current lows are unsustainable and project a reboundin price growth to around 5% by the end of 2024 in both Poland and Hungary, as helpful base effects fade and the Polish government unwinds cost-of-living subsidies.

Amid risks from higher fuel prices, weaker exchange rates, persistently strong services inflation and the prospect of the region's economic recovery gaining traction, central bankers have grown cautious about cutting rates further.

"The situation has changed," economists at Allianz said. "As markets have dialled back their expectations for cuts in advanced economies, they have also done the same for emerging markets."

An analysis of changes in market pricing based on JP Morgan figures shows investors have priced out about 100 basis points of rate cuts in the Czech Republic and Poland by December compared with end-2024 levels expected in early January.

The shift is the largest in Hungary, with investors slashing the scope of expected easing by nearly 200 bps. Late-April market pricing showed just 35 bps of cuts in Poland's main rate by the end of 2024, less than a third of what was priced in at the start of the year.


VULNERABLE CURRENCIES

While 2024 inflation is seen hovering around 2% in the Czech Republic, by far the lowest in central Europe, some rate-setters there too have expressed concerns over real wage growth and currency weakness as the economy begins to show signs of life.

The region's currencies, like other emerging market assets, were hammered by data showing the strength of the U.S. economy, which boosted the dollar and pushed back investor bets on the timing of the first Federal Reserve rate cut to September - or later.

The Czech crown and the Hungarian forint are both in the red for 2024, due in part to their narrowing rate differential, with the ripple effects of the dollar's rally knocking even Poland's zloty off the four-year-highs it scaled early this month.

"CZK and PLN are among the most vulnerable emerging marketcurrencies to persisting inflation, U.S. economic outperformance, and higher repricing of the Fed funds rate path," strategists at Societe Generale said, citing the currencies' strong ties with the euro.

Last week Czech National Bank Governor Ales Michl said even if the bank cuts rates on Thursday, with analysts projecting another 50 bps reduction, the CNB would take a "very cautious" approach to rate easing beyond that point.

"The more cautious approach of monetary institutions to rate cuts in view of possible reflation is evident on both sides of the Atlantic," ING economists said. "After all, the European Central Bank is watching the Federal Reserve, and the CNB is watching the ECB."

Hungary's central bank has also flagged a cautious approach to further easing, with Deputy Governor Barnabas Virag all but ruling out rate cuts in the second half after the bank lowered its base rate by just 50 bps last week, the smallest step in an easing cycle launched last May.

Another 50-bps Czech rate cut in June, which economists think is on the cards, would take the Czech ratewithin a whisker of the European Central Bank's main rate by June, when the ECB is widely expected to start cutting rates. How fast the ECB cuts rates after that is less certain, with markets having scaled back bets on euro zone rate cuts in the second half of the year.

"While we continue to expect the (Czech) policy rate to reach 3.50% by the end of the year, we see risks to our call as being skewed to the upside," Morgan Stanley economist Georgi Deyanov said, citing currency weakness and possible shifts in ECB rate expectations as factors in coming months.


Inflation to rebound from March lows https://tmsnrt.rs/4aQeQ4d

Easing bets pared vs start of 2024 https://tmsnrt.rs/49ZTS1I


Additional reporting by Marc Jones in LONDON
Writing by Gergely Szakacs
Editing by Christina Fincher

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إخلاء المسؤولية: تتيح كيانات XM Group خدمة تنفيذية فقط والدخول إلى منصة تداولنا عبر الإنترنت، مما يسمح للشخص بمشاهدة و/أو استخدام المحتوى المتاح على موقع الويب أو عن طريقه، وهذا المحتوى لا يراد به التغيير أو التوسع عن ذلك. يخضع هذا الدخول والاستخدام دائماً لما يلي: (1) الشروط والأحكام؛ (2) تحذيرات المخاطر؛ (3) إخلاء المسؤولية الكامل. لذلك يُقدم هذا المحتوى على أنه ليس أكثر من معلومات عامة. تحديداً، يرجى الانتباه إلى أن المحتوى المتاح على منصة تداولنا عبر الإنترنت ليس طلباً أو عرضاً لدخول أي معاملات في الأسواق المالية. التداول في أي سوق مالي به مخاطرة عالية برأس مالك.

جميع المواد المنشورة على منصة تداولنا مخصصة للأغراض التعليمية/المعلوماتية فقط ولا تحتوي - ولا ينبغي اعتبار أنها تحتوي - على نصائح أو توصيات مالية أو ضريبية أو تجارية، أو سجلاً لأسعار تداولنا، أو عرضاً أو طلباً لأي معاملة في أي صكوك مالية أو عروض ترويجية مالية لا داعي لها.

أي محتوى تابع للغير بالإضافة إلى المحتوى الذي أعدته XM، مثل الآراء، والأخبار، والأبحاث، والتحليلات والأسعار وغيرها من المعلومات أو روابط مواقع تابعة للغير وواردة في هذا الموقع تُقدم لك "كما هي"، كتعليق عام على السوق ولا تعتبر نصيحة استثمارية. يجب ألا يُفسر أي محتوى على أنه بحث استثماري، وأن تلاحظ وتقبل أن المحتوى غير مُعدٍ وفقاً للمتطلبات القانونية المصممة لتعزيز استقلالية البحث الاستثماري، وبالتالي، فهو بمثابة تواصل تسويقي بموجب القوانين واللوائح ذات الصلة. فضلاً تأكد من أنك قد قرأت وفهمت الإخطار بالبحوث الاستثمارية غير المستقلة والتحذير من مخاطر المعلومات السابقة، والذي يمكنك الاطلاع عليه هنا.

تحذير المخاطر: رأس مالك في خطر. المنتجات التي تستخدم الرافعة قد لا تكون مناسبة للجميع. يرجى الاطلاع على تنبيه المخاطر.