Soaring inflation across Central and Eastern Europe has begun to derail the region’s booming economy, setting off alarms bells at the IMF and raising the risk of a monetary crunch.
Inflation in Bulgaria (12pc), Latvia (11.4pc), Kazakhstan (8.6pc), Russia (9pc), Estonia (7.2pc), Lithuania (7.1pc), and Romania (6pc) has reached levels that will force the authorities to slam on the brakes, endangering banks that have allowed credit growth to mushroom out of control.
Those countries that rely most on foreign debt to fund their housing booms – often financing mortgages in euros, Swiss francs, or even Japanese yen – are already facing a buyers’ strike.
Money market rates have rocketed and the cost of default insurance has yet to settle back after spiking in August.
“This could easily become Europe’s subprime crisis,” said Lars Christensen, Danske Bank’s chief economist for Eastern Europe. >>>>
Eastern Europe to reap its own subprime crisis
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