* Hungarian, Polish central banks warn of inflation risks
* CSFB raises inflation forecasts for region, ratings agency
Moody's sees need for tightening
By David Chance
BUDAPEST, June 5 (Reuters) - East European central bankers
warned on Thursday that inflation would continue to rise and
said they needed to hike interest rates further.
The warnings came as the European Central Bank said it may
raise interest rates in July after it leaving them on hold at 4
percent on Thursday for the 12th month in a row.
In Hungary, where interest rates already stand at a 3-year
high of 8.50 percent after 3 consecutive hikes totalling 100
basis points, central bank Governor Andras Simor said an
expected slowing in inflation had not happened.
The delay "raises inflationary expectations, which in turn
increases the risks to the (3 percent) 2010 inflation target,"
he told a business conference.
Headline inflation in Hungary was 6.6 percent on an
annualised basis in April <HUCPIY=ECI> and is expected to come
in at 6.55 percent when data for May is released next week,
according to a Reuters poll <HUCPIY1>.
"In our view it will take a more aggressive monetary policy
(in Hungary) i.e. further rate hikes and a temporary boost to
the exchange rate to moderate uncertainty about inflation and
the related risk premium, similarly to Czech and Polish Central
Bank actions," said Commerzbank analyst Barbara Nestor.
In Poland, headline inflation in April was 4.0 percent
<PLCPIY=ECI> and could spike to 4.5 percent in August, according
to central bank rate setter Katarzyna Zajdel-Kurowska.
Polish Monetary Policy Committee member Dariusz Filar said
there may need to be a "few more moves" in policy to bring
inflation back to the central bank's target of 2.5 percent.
His comment echoed a report by the Organisation for Economic
Cooperation and Development on Wednesday recommending
"substanial rate hikes" by Poland's central bank.
The bank has raised rates seven times since April 2007 to
5.75 percent <PLINTR=ECI> to curb inflation and analysts polled
by Reuters expect a further 25 basis point hike in June.
PRICES ACCELERATE
Price growth has accelerated across eastern Europe as oil
and food prices add to already buoyant consumer demand,
prompting hikes in Poland, Hungary, Romania and elsewhere.
In Romania, growth of an annualised 8.2 percent in the first
quarter of the year prompted central bank governor Mugur
Isarescu on Wednesday to warn of "overheating".
The bank there has raised rates five times to 9.75 percent
and inflation was stuck at a two-year high of 8.6 percent in
April, well above the bank's end-year goal of 2.8-4.8 percent.
While central banks have responded with higher rates,
concerns are being voiced over the strength of currencies.
Hungary's forint has risen by 4.5 percent against the euro
<EURHUF=D2> this year and hit 5-year highs earlier this month.
Goldman Sachs is forecasting that the currency will rally to 225
to the euro over the next 12 months from 242.75 at present.
The strong forint, which could hit exports, the only growing
sector of Hungary's ailing economy, has prompted criticism from
top officials in the ruling Socialist Party.
Earlier this week Poland's central bank governor Slawomir
Skrzypek said he was concerned whether the economy could adjust
to the rise in the value of the zloty, which has gained 6.6
percent this year <EURPLN=D2> against the euro.
The Czech crown <EURCZK=D3> hit 24.533 per euro on Thursday,
an all-time high excepting a freak trade in April. It has
appreciated 6.5 percent since the start of the year.
INFLATION FORECASTS RAISED, GROWTH SQUEEZED
Most central banks and economists did not anticipate energy
and food prices would rise so strongly. In a report published on
Thursday, investment bank Credit Suisse upped its inflation
forecasts across eastern Europe, the Middle East and Africa.
"We expect regional inflation to pick up from 9.4 percent
year-on-year in 2007 to 10.5 percent year-on-year in 2008," the
bank said in its quarterly economic outlook.
An analyst from rating agency Moody's also sounded a warning
note in an interview with Reuters, but noted that with economic
growth under pressure, policymakers needed to exercise caution.
Economic growth in Hungary was just 1.3 percent in 2007, the
slowest in the European Union, while in Poland, growth is seen
slowing to 5.5 percent this year from 6.6 percent in 2007.
"What you see under current macro conditions (emerging
European countries) have a difficult time suppressing the second
round effects of imported inflation," Moody's regional analyst
Kristin Lindow said.
"The whole package is not quite tight enough in the region,
but ... you have to push very gently on the brake and so it's
quite a delicate process."
(Reporting by Balazs Koranyi, Kuba Jaworowski, Karolina
Slowikowska)
