In the face of Russia’s aggression against Ukraine and the resulting uncertainty, the central banks of Central and Eastern Europe (CEE), including Poland, will limit the cycle of interest rate increases; we should also expect foreign exchange interventions in all CEE countries, assess analysts from the Polish Economic Institute (PIE).
“We expect central banks in Central and Eastern Europe to limit the cycle of interest rate increases. Considering the current scale of uncertainty, the main task is to stabilize the exchange rates. We should expect foreign exchange interventions in all countries of the region,” according to PIE macroeconomic monthly February 2022.
According to the PIE, the outbreak of the war will revise the approach to monetary policy in the world, and the Fed and the European Central Bank (ECB) will take the “wait-and-see” position and re-enter the path of monetary easing.
“Previous forecasts have assumed interest rate hikes in the US and Europe to counter inflation. Currently, however, this poses less of a threat than a monetary conflict. Developed economies will have to develop military capacity to make up the spending gap. Therefore, we expect the Federal Reserve (Fed) or The European Central Bank (ECB) will soon switch to a wait-and-see mode, and in the longer term they should ease their monetary policy again, the report reads.
A similar approach will also be adopted by banks in the region, including the National Bank of Poland (NBP), emphasized PIE.
PIE economists indicate that the Fed will probably raise rates by 25bp at the March meeting and then stop plans for further tightening.
“The threat of world war will force central banks to stimulate the economy again. During the pandemic, the world central banks provided a monetary impulse on an unprecedented scale. In 2020, global M3 supply increased by more than 22% per annum. Currently, actions are likely to be smaller – The ECB should be more active in supporting the EU’s energy sovereignty, digitization and arming. The military threat means that there will be practically no interest rate hikes,” summed up the Institute.
Source: PIE and ISBnews
