By Michael Winfrey
PRAGUE, May 6 (Reuters) - Romania's central bank hiked rates
on Tuesday to counter a surge in inflation, and analysts say it
may soon be followed by other policymakers in central and
Eastern Europe as they face a common threat.
But in a sign the euro zone slowdown is dragging on emerging
Europe, Czech data showed the biggest fall in exports since 2002
in March and a big contraction in imports [].
Romania raised its benchmark rate 25 basis points to 9.75
percent, expected by a small minority of analysts in a Reuters
poll. That came despite comments from policymakers that rates
were at adequate levels to bring down inflation [].
That move came hot on the heels of the Hungarian central
bank's quarter point hike to 8.25 percent last week and a pledge
that it was ready to hike again to fight inflation.
"The bigger picture here is while central banks in the West
are cutting interest rates... central banks further east are all
hiking, albeit for different reasons," said economist Neil
Shearing from Capital Economics in London.
The Bank of England is set to trim rates again in the next
few months, possibly as soon as Thursday, while the U.S. Fed has
slashed rates by 3.25 percentage point since September.
But in the euro zone, inflation is well above target and the
European Central Bank is expected to keep rates at 4 percent on
Thursday for the 11th successive month. See []
The Romanian leu currency slipped slightly against the euro
to 3.6565 <EURRON=> after the rate hike.
MORE HIKES?
But while inflation is a common threat, the region's major
economies differ greatly. The Czechs, Poles and Slovaks have
strong exports and domestic demand and are helped to some degree
on inflation by appreciating currencies.
Data on Tuesday showed the Czech foreign trade balance
showed a 8.12 billion crown ($496.9 million) surplus in March,
much lower than the 15.0 billion crown surplus expected.
Exports dipped 5.6 percent on the year, for the first drop
since January 2004. Imports shed 2.4 percent, sliding for the
first time since July 2005.
The data followed another indication of fallout from slower
growth in the euro zone -- the main market for Czech exports. On
Friday, data showed the Purchasing Managers' Index dropped to
the lowest level in nearly three years.
The Polish and Slovak central banks held fire on rates last
week, and the Czechs are expected to do the same on Wednesday.
Like those three, Romania is struggling with a tight job
market and high wage demands, but it is also facing overheating
due to a credit-fuelled consumption boom, a wide external gap,
and a weakening in the leu currency.
Analysts said Romania and Hungary would probably hike again
soon, both to fight price growth and to keep a solid premium
over ECB rates to prevent outflow from their currencies.
"Even though the Romanian economy is slowing down, inflation
is likely to remain well above the National Bank of Romania
official inflation forecast in both 2008 and 20009 and the NBR
is therefore likely to be forced to tighten monetary policy in
the coming months," Danske Bank said in a research note.
Across the region, higher food and fuel costs have
compounded with booming growth, a jump in domestic demand and
demands from workers for double-digit wage hikes, threatening
second-round inflationary effects.
(Editing by David Christian-Edwards)
