Central Europe: Monetary policy

Central Europe: Monetary policy

The National Bank of the Czech Republic (CNB) raised its key monetary policy interest rate by 25bp to 1.75% last week, continuing its gradual tightening cycle (seven hikes by a cumulative 170bp since August 2017). Inflation eased to 2.3% y/y in September but remained slightly above the CNB’s 2% target. In contrast, the National Bank of Romania (NBR) decided yesterday to hold its key monetary policy interest rate unchanged at 2.5%, even though inflation (5.0% y/y in September) remained well above the NBR’s 2.5% ± 1pp target range and nominal wages continued to surge by over +13% y/y in Q3. The NBR argued that core inflation continued to fall to 2.7% in September. Today, the Monetary Policy Council (MPC) of Poland kept its key policy rate at 1.5%, unchanged since March 2015. Inflation fell to 1.7% in October, well below the MPC’s 2.5% target. The three countries’ currencies have shown resilience to global EM turbulences (Argentina, Turkey), having fallen only marginally by less than -1% against the EUR since end-July. We expect gradual monetary tightening in these countries in 2019.