Central Europe, the pandemic and the inflation outlook

The pandemic hasn’t had a major disinflationary effect in Central Europe and the region is in what we think will turn out to be a prolonged period of above-target inflation. But how this affects monetary policy will differ across the region. Interest rates in Poland and Hungary are likely to remain low for longer than investors assume, while the Czech tightening cycle is likely to be more aggressive. We think this will be associated with a marked divergence in the performance of currencies and bonds across the region.