Emerging countries affected by global recovery plan: low interest rate is over – News by source

With record debt, depreciating currencies, accelerated inflation and rising financing costs, emerging economies are tasting the bitter side of the global pandemic recovery.

Read also: Nicușor Dan does NOT allocate money for the Cathedral of the Salvation of the Nation: We do not have in the budget

Central banks are being forced to intervene, and a few are expected to start raising monetary policy interest rates, which would put an end to a long period of low interest rates. In Eastern Europe, only the Czech Central Bank has clearly included raising interest rates among the possibilities for action, writes ZF, informs Mediafax.

Adam Glapinski, president of the National Bank of Poland, ruled out earlier this month that his institution could raise interest rates this year or in 2022, writes The First News. “We have not yet entered the path of rapid growth,” he explained. “As we move toward robust, rapid and stable growth, we will think again.” Until then, new interest rate cuts are not ruled out, depending on how the pandemic evolves. Currently, the reference interest rate for monetary policy is 0.1%, the lowest level in history. The indicator is at this level of ten months. The largest Eastern European economy saw prices jump up 1.2% in January from December, the biggest jump in a decade, reflecting increases in taxes and regulated prices. In annualized terms, inflation was 2.7%. In December, the central bank intervened to weaken the zloty, a move the institution said could be repeated “to strengthen the impact of monetary easing policy” on the economy. Unlike the previous financial crisis, in the current one the Eastern European central banks have engaged in the fight against the recession asset acquisition programs following the model of the stronger colleagues in the West. Glapinski assured that his institution will continue to acquire assets. “We will continue to buy for as long as necessary, perhaps indefinitely.” However, the Polish economy is a special one in the region. The recession caused by the current crisis has been easy and its exports are strong. The labor market has also proved extremely flexible, both in crisis and during the boom, thanks to labor imported from Ukraine.

In Hungary, the situation is different. Inflation accelerated in February, and analysts expect a period of several months of volatility that will test the central bank’s imagination and arsenal. Growth in consumer prices accelerated to over 3% on an annualized basis, from 2.7% in January. As expectations of rising inflation have pushed the forint close to a record low against the euro, investors are trying to figure out whether the central bank will respond with a one-week interest rate hike on deposits for the next three months, Bloomberg reports. One week ago, the Hungarian national bank adjusted its quantitative easing program by waiving a limit on the amount of high-maturity bonds it can purchase. The result was the desired one, the decrease of the bond yields for ten years, ie the reduction of the financing costs. The Hungarian economy is prone to the accelerated depreciation of the forint.

As for the Czech Republic, the trend of the currency, the crown, is appreciable. In February, Vojtech Benda, a member of the central bank’s board of governors, explained that interest rates are likely to rise if the institution’s projections come true, that is, if the economy enters a phase of gradual and sustainable recovery. The longer-than-anticipated lockdown period, Benda said, could reduce the need for interest rate hikes. The crown, which in February was stronger than the central bank’s forecasts, tightened monetary conditions in the export-oriented economy, but that does not mean the institution will stand idly by, the banker said.

Subsequently, Marek Mora, deputy governor, circulated the idea of ​​an interest rate increase in June, Reuters shows. When he said this, the crown was one of the most appreciated coins in the world.

In other emerging economies devastated by Covid-19, the situation is clearer. After an unprecedented period of cuts in interest rates for economic support, Brazil is expected to raise rates this week and Nigeria and South Africa could follow soon, according to Bloomberg Economics. Russia has already stopped relaxing politics sooner than expected, and Indonesia could do the same.

Behind the change: renewed confidence in the outlook for the world economy amid greater stimulus in the US. This causes commodity price inflation to accelerate and bond yields to rise, while pressing on the currencies of developing nations as investment is redirected elsewhere.

– .