If the conflict in the Middle East causes energy prices to rise further – and for a prolonged period – policymakers in Emerging Europe are probably going to be more inclined to raise rates than those elsewhere in the emerging world. Turkey has already taken steps to tighten monetary conditions in response to pressure on the lira. And while the inflation picture in Central Europe was improving prior to the conflict, the backdrop of still-strong wage growth and loose fiscal policy suggests that the conditions for rate hikes could fall into place relatively quickly.
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