Underlying inflation in central, eastern, and southeastern Europe surpasses that of advanced economies, necessitating many regional central banks to uphold tight monetary policies longer than the European Central Bank, as stated by a senior IMF official.
While some central banks in the area have initiated interest rate reductions, such as Hungary, Poland, and the Czech Republic, Romania’s central bank has abstained from rate easing for now.
International Monetary Fund European Department Director Alfred Kammer remarked that the deceleration of inflation is slower in Romania, Moldova, Montenegro, Hungary, and Serbia compared to other countries in the region.
Kammer emphasized the persistent inflationary pressures in the region compared to advanced economies, suggesting that several central banks should prolong their tight monetary stance beyond the European Central Bank’s timeline.
Market anticipation fully embraces a June rate cut by the ECB, with most policymakers supporting such a move.
Kammer, addressing an economics forum in Split, Croatia, highlighted government intentions to withdraw extraordinary support measures for households and businesses in the coming years to counteract inflation by restraining demand.
Reflecting on the period from 2021 to 2023, Kammer noted a decline in trust in economic institutions across emerging Europe, with various central banks encountering political interference.
He stressed the crucial role of central bank independence in fulfilling inflation mandates, underscoring that interference undermines trust and complicates policymaking.
Kammer acknowledged the challenge of achieving a soft landing in the region, emphasizing its importance given the greater task of enhancing emerging Europe’s growth prospects sustainably.
Even prior to the COVID-19 outbreak, the pace of convergence of emerging European economies with their advanced peers had slowed, leading to a projection that these countries would reach the EU’s average living standards, excluding emerging European members, only around 2100, 50 years later than previously anticipated.
