By Gergely Szakacs
BUDAPEST, March 14 (Reuters) - Market bets on interest
rate cuts in central Europe in the near future are optimistic as
inflation could end up being stickier than expected, the
European Bank for Reconstruction and Development's chief
economist, Beata Javorcik, told Reuters.
Rate-setters in central Europe, who were at the forefront of
a global tide of monetary tightening in 2021, are seeking to
keep rate policy stable for now as the region slows sharply due
to the fallout from the war in neighbouring Ukraine.
The Hungarian and Czech central banks, which were the first
to start raising interest rates two years ago, could become the
first in Europe to start lowering borrowing costs this year amid
an expected retreat in inflation.
Economists see the first cut in Czech rates in the second
half, while analysts in the latest Reuters poll were split over
whether Hungary's central bank could start lowering interest
rates in the second, or the third quarter.
With Hungary mired in a technical recession, its central
bank has come under growing pressure from Prime Minister Viktor
Orban's government to start lowering borrowing costs.
"Relative to these previous experiences (two recent episodes
of disinflation), the IMF is projecting very fast disinflation.
In that sense, we think that these projections are optimistic,"
Javorcik said on Tuesday.
"This suggests that the view that central banks will start
cutting interest rates very soon is quite optimistic as well."
In January the IMF projected inflation in emerging market
and developing economies to ease to 8.1% in 2023 and 5.5% in
2024, still above a 4.9% pre-pandemic average.
Javorcik also said despite a market sell-off at the start of
the week following last week's collapse of Silicon Valley Bank,
a repeat of the 2008 Global Financial Crisis that followed the
collapse of U.S. investment bank Lehman Brothers was unlikely.
"The Lehman moment was associated with financial innovation
that was poorly understood at the time. The scale of the
phenomenon was poorly understood as well," she said.
"In the case of SVB, we are dealing with an old-fashioned
type of a crisis prompted by an environment of higher interest
rates," Javorcik said, adding that U.S. regulators stepped in
very quickly to stem the fallout, limiting contagion risks.
(Reporting by Gergely Szakacs, Editing by William Maclean)
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