In no rush to tighten (Jan 10)

While policymakers in a number of countries have appeared less dovish of late, three factors should keep interest rates much lower than the markets currently expect. First, the pace of economic recovery is likely to disappoint. Second, despite an energy-led pick-up in the near-term, inflation is unlikely to prove an issue anywhere this year. Finally, with fiscal policy set to tighten in almost every country, it will fall to monetary policy to support the fragile recovery. We expect modest hikes in Poland and the Czech Republic from Q4, but an IMF deal in Turkey could see rates there remain unchanged into 2011. Meanwhile, interest rates in Hungary and Romania still have further to fall.