Sharp falls in inflation mean that the economies of Central and Eastern Europe (CEE) are on the cusp of a broad-based monetary loosening cycle. That said, we think that the legacy of the inflation shock over the past two years will be more persistent than many are anticipating, which will limit how quickly inflation settles at central bank’s targets. The upshot is that while interest rates may be cut aggressively over the next year or so, we doubt rates will fall quite as far as most are expecting by the end of 2025.
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