ECB may spark rate rises in Central-Eastern Europe

Significance

Inflation rates are rising sharply across Central-Eastern Europe (CEE), mainly thanks to a recovery in commodity prices. A flurry of stronger-than-expected economic data is fuelling speculation in financial markets about the timing of increases in interest rates across the CEE region. Forward markets are already pricing in rate hikes in Romania and Poland within the next twelve months.

Impacts

• Traders are now expecting the US Federal Reserve to achieve its goal of hiking interest rates three times this year.
• Emerging-market bond and equity funds are enjoying a surge in inflows, market sentiment having improved sharply after the US election.
• Mounting uncertainty regarding France’s presidential election next month is having a negligible impact on euro-area government bond markets.