Romania, in the top ten countries with high interest rates in Europe

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The recent increase in the interest rate by the National Bank of Romania places Romania in the top 5 of the countries with the highest reference interest rates in the European Union and in the top ten countries with high interest rates in Europe, according to an eToro analysis, quoted by newspapers .com.

Romania ranks 9-10 on a par with Iceland (4.75%), ahead of Poland (6.5%), the Czech Republic (7%) and Hungary (7.75%). With the exception of Iceland, it is also the top 5 of the countries in the European Union with the highest rates.

The highest reference interest rate in Europe belongs to Ukraine (25%), followed by Moldova (18.5%), Turkey (14%), Belarus (12%) and Russia (9.5%).

Poland last week raised interest rates by just 0.5%, less than market expectations of 0.75%, although it still has rising inflation, which rose to 15.6% in June. The real interest rate – which is calculated by subtracting the inflation rate from the interest rate – is -9.1%, lower than in Romania, which is -9.74%.

Leaving Ukraine aside, Hungary has the lowest real interest rate in Europe, at only -2.95%. Despite this fact and a very aggressive movement of the Central Bank, which increased the rates on weekly deposits by 2% to 9.75%, very close to the inflation rate of 10.7%, the forint continued devaluation against the US dollar. It has reached almost 25% since the beginning of the year against the US dollar and almost 12% against the euro.

The US Fed has published the minutes of its meetings, which indicate even more future increases in an attempt to prevent inflation from getting worse. Decision makers raised interest rates by 0.75% last month and supported raising them at the next meeting in July, either by 0.50% or 0.75%, according to the minutes.

This shows that Fed members acknowledged that tightening the policy could slow economic growth for a while, but considered that a return to inflation to 2% is essential to achieve a maximum level of employment in a sustained manner. The latest movements of European central banks show the same philosophy. Investors are looking to the ECB to see if the Fed will follow suit.

The US dollar has continued to appreciate against the euro and other European currencies, including against the leu, and some reports indicate that parity will be reached. This position of the Fed, which is ready to trade economic growth in exchange for lowering inflation, is considered by markets less dangerous than the risk facing Europe that Russia will cut off gas supplies.

Global money market strategist Kit Juckes believes that while Europe’s energy dependence on Russia is declining, it is not fast enough to avoid a recession if the pipeline closes. If this happens, we could see a further 10% depreciation of the euro against the dollar, which will bring currencies to parity for the first time since 2002.

While a cheap euro is good for exports, Europe’s deprivation of natural gas will prevent the industry from producing more goods. We are already seeing the beginning of the problems caused by the high price of gas in Germany. But in the midst of these uncertainties, we are beginning to see the first good signs of inflation easing. Pressure on supply chains continued to decline in June, although it is still at historically high levels.