Unlike in Switzerland, Eastern Europe has reasons to cheer Mario Draghi’s anticipated bond-buying push.
Policy makers from Poland to Hungary (HUCPIYY) will meet today in Vienna two days before the European Central Bank is due to discuss monetary stimulus that may trigger inflows into currencies such as the Swiss franc. For Eastern Europe, the move may help keep deflation at bay and economic growth ticking over.
ECB bond buying would “clearly be a positive,” said Piroska Nagy, an economist at the London-based European Bank for Reconstruction and Development, which has invested to rebuild the region since communism fell. “Monetary easing can have a positive impact on the economies that are linked to the zone conducting this policy.”
ECB Stimulus Good for Growth
While most eastern European countries don’t yet use the euro, they stand to gain as the ECB stimulus will encourage cross-border lending and bolster growth in the currency bloc, their main trading partner. Policy makers in the region are already busy dealing with the withdrawal of stimulus in the U.S. and the Swiss National Bank (SNBN)’s shock decision to end its currency cap, which has raised debt costs for franc mortgage holders.
Meanwhile, currencies weakened last week in Poland and Hungary, the nations with the highest share of home loans denominated in francs. The zloty and the forint are both down 0.7 percent against the euro this year.
The ECB stimulus may allow the area to borrow funds at record lows, bolstering economic growth, said Neil Shearing, chief emerging-markets economist at Capital Economics Ltd. in London.
According to Shearing, additional liquidity from the ECB may also spur western European lenders, which own about two-thirds of Eastern Europe’s banking industry through companies including Erste Group Bank AG (EBS) and Societe Generale SA (GLE), to slow the pace at which they withdraw capital from the region. ECB bond-buying would bolster confidence across the entire continent, he said.