Bancos subiendo los tipos de interés como si no hubiera mañana. Sólo quedan por ver las gilipolleces que dirá la subnormal de Lagarde este jueves.
Central bank intervention
Eastern Europe central banks step in as currencies slide
Interventions and interest rate rises tackle currency weakness sparked by invasion of Ukraine
Central banks in eastern Europe may need heavier intervention in their currencies and further aggressive interest rate rises to calm the impact on markets of the war in Ukraine, analysts said.
Hungary’s central bank raised its key policy interest rate by three-quarters of a percentage point on Thursday to 5.35 per cent, a bigger move than expected and the largest since 2008. Poland’s central bank has intervened three times this week in foreign exchange markets in an attempt to slow the zloty’s slide against the euro. The Czech central bank intervened on Friday to support the koruna.
Hungary’s rate rise helped the forint recover from a record low of almost 383 to the euro during Wednesday, but by Friday it was testing that level again. The central bank has not intervened in currency markets but said it was ready to do so “at any moment”.
The zloty fell to more than 4.86 to the euro on Friday morning, its lowest level since the global financial crisis, before the latest intervention helped it claw back some losses. It was trading at around 4.50 before Russia invaded Ukraine.
The Czech currency also fell sharply this week to more than 25.9 koruna to the euro, a 5.6 per cent fall from early February. Friday’s central bank intervention helped it recover to about 25.6 to the euro by late morning.
Liam Peach, emerging Europe economist at Capital Economics, said all three countries were exposed to significant inflationary pressures caused by currency depreciation, which pumps up the cost of imports right at a time of soaring commodity prices. “They are in the firing line because they have the largest economic and financial ties to Russia and Ukraine,” he said.
All three could be forced to raise their policy interest rates to 6 or 7 per cent by the middle of the year, he added, levels that would have been “unthinkable a few months ago”.
He warned that central and eastern European countries were more exposed than any in the world, with the possible exception of the US, to a wage/price spiral of inflation, given their tight labour markets, large imports of consumer goods from western Europe resulting in a high impact on inflation from currency depreciation, and the fact that central banks have been slow to raise their policy interest rates.
Real interest rates are deeply negative across the region. Inflation in the Czech Republic is running at about 10 per cent, compared to the central bank’s rate of 4.5 per cent.
Poland’s inflation is above 9 per cent versus a policy rate of 2.75 per cent. Inflation in Hungary is running at about 8 per cent. Arthur Budaghyan, chief emerging markets strategist at BCA Research, said investors were not positioned for further falls in the zloty and recommended shorting it against the US dollar.
“Proximity to the war, especially for Poland, makes it vulnerable,” he said, adding that pressure on currencies and other assets would spread to other emerging markets if the war did not end quickly.
“The most vulnerable and the closest to the epicentre get hit first and only over time the selling spreads,” he said. “The conflict most likely will not end overnight and I assume investors will become more nervous. I don’t think the sell-off in emerging markets is over.”
