*East Europe's central banks meet amid rising inflation
*Hungarian, Polish and Romanian central banks each seen
hiking interest rates by 25 bps, Czechs, Slovaks seen on hold
By Sandor Peto
BUDAPEST, June 20 (Reuters) - Three of the five eastern
European central banks meeting next week are seen tightening
policy as a global inflation wave and rising debt yields force
emerging market rate setters to respond with higher interest
rates.
Central bank hawks are likely to be bolstered by monetary
tightening in developed economies like the U.S. and the euro
zone, which would put further pressure on Central European debt
by cutting their yield advantage, analysts said.
Among the region's central banks, Hungary <HUINT=ECI>,
Poland <PLINTR=ECI> and Romania are each seen lifting their
interest rates by 25 basis points next week.
The Czech Republic <CZCBIR=ECI> is seen joining the pack
only around August, while Slovakia is expected to keep rates on
hold as it prepares for entry the euro zone.
Rate hike expectations have strengthened across the region
as inflation has been driven by the global rise in energy and
food prices.
That in turn has caused a surge in wage demands which could
ratchet inflation higher even though there has been a slowdown
in economic growth.
"This is a credibility game now for most central banks in
Eastern Europe," said Barbara Nestor, analyst at Commerzbank.
"It has become the mainstream monetary policy line that you
can't look at core inflation only, you have to include food and
energy prices in the target formula... This is a trend."
Inflation is running at seven percent in Hungary, well above
the 3 percent target, and at 4.3 percent in Poland where the
target is 2.5 percent. It was 8.5 percent in May in Romania, 6.8
percent in the Czech Republic and 4.6 percent in Slovakia.
RATE HIKES LIFT CURRENCIES
While low liquidity and risk aversion in global markets has
dampened appetite for government debt in eastern Europe, leading
to cuts at auctions, a series of rate hikes has fuelled a surge
in the regions' currencies.
Hungary's forint <EURHUF=D2> rose to five-year highs against
the euro ahead of Monday's meeting where the central bank is
seen lifting rates to 8.75 percent from 8.5.
The currency appreciation which cuts imported inflation is
still not seen as sufficient to persuade central banks and
markets that inflation can be checked without further monetary
tightening.
Though the Czech central bank is seen keeping interest rates
on hold at 3.75 percent on June 26, many analysts expect that in
the next few months it will add one more to the four rate hikes
which it has delivered in the past 12 months.
Poland is seen lifting its 5.75 percent main rate to 6
percent on June 25 and then keeping it unchanged.
In Hungary Monday's likely rate hike will not be the last
one, analysts said.
"In the case of Hungary investors either think the forint's
strength will not be lasting or see big inflation risks and they
are unwilling to return into (Hungarian) government paper
before significant tightening," Commerzbank's Nestor said.
Romania's central bank is seen lifting its benchmark rate by
25 basis points to 10.0 percent and analysts see further hikes.
The prospect of an interest rate hike by the ECB increases
pressure on the region's central bank to hike rates, but it in
Slovakia's case, the central bank rate will probably keep its
rate unchanged at 4.25 percent until the country's euro zone
entry next year.
"...if the ECB hikes interest rates by 25 basis points next
month, as we expect, this would be sufficient to close the
current interest rate differential (with Slovakia)," Capital
Economics analyst Neil Shearing said in a note.
Polish rates seen up in June []
Slovak rates seen flat in June, awaiting ECB []
Crown to keep Czech rates flat now []
Hungary cbank seen hiking rates by 25 bps []
Romania c.bank seen hiking rates []
Factbox on interest rate forecasts []
(Reporting by Sandor Peto)
