Central banks in some Central and Eastern European (CEE) economies have stepped into tightening cycle to counter inflationary pressures and to avoid the overheating of their buoyant economies.

The National Bank of Romania (BNR) tightened its monetary policy with a quarter-point rate increase, from 1.75 percent to 2 percent, starting on Tuesday.

The Czech National Bank (CNB) have performed two hikes of its benchmark interest rate in the second half of last year, as the inflation rate was already above the target range for the whole of 2017.

Higher inflation is the main driver of the central banks' movements, as consumers across the region enjoyed an increase of the spending power. Due to tight labor market conditions, the wage growth has accelerated across all CEE countries, reaching double-digit growth in Hungary and Romania, noted the Erste Bank's analysts.

The Romanian national bank hiked its benchmark interest rate to counter persisting inflationary pressures and to avoid the overheating of an economy.

"The central bank is thus sending a firm message that it means business in terms of pursuing its inflation target and of putting economics first," said Horia Braun-Erdei, chief economist at the Banca Comerciala Romana (BCR).

The financial market anticipated the rate hike, as the inflation rose to 3.2 percent in November, above the central bank's target of 2.5 percent. The move took the analysts by surprise as they bet that the central bank will wait until February to raise its benchmark interest rate which was kept untouched since May 2015. The market analysts forecast four rate increases this year.

"We think that the BNR will go for a measured approach on rates in 2018 and deliver a total of 1 percent in tightening via four 0.25 percent key rate hikes, one in each quarter," said Ciprian Dascalu, chief economist at ING Bank Romania.

The central bank of the Czech Republic hiked twice its benchmark interest rate, in the second half of last year. In August, the CNB increased the two weeks repo rate by 0.20 percent in an attempt to avoid the overheating of the economy and to temper the double digit growth of property prices, said David Navratil, economist at Erste Group.

In a widely expected decision, the CNB increased again the key rates in November as the inflationary pressures persisted. The CNB governor Jiri Rusnok signaled that the bank's "forecast still assumes gradual interest rate increase and rates should be close to 3 percent long-term level at the end of 2019."

Apart from the inflation worries, the Czech central bank tries to avoid koruna's volatility. The country's local issued debt, (the T-bills), is owned mostly by non-residents and the Erste Bank's analysts warned that "there is a significant risk that at least some of these investors could sell korunas and buy euros, which would in turn imply koruna depreciation." A hike of interest rates is essential in order to counter the risk of a sudden capital outflow.

The Czech rate setters may pause their rate hiking cycle for the moment, as the CNB would prefer a stronger koruna exchange rate, and would like to continue tightening through the exchange rate in parallel, said Stephan Imre, analyst at Raiffeisen Bank.

In the meantime the CNB sophisticated its monetary policy and raised domestic banks' countercyclical capital reserve rate to 1.25 percent.

"So the fast growth of new mortgages and other consumer loans has not necessarily to be tackled by base rate hikes," noted Imre.

The financial markets are focusing on the board meeting of Poland's central bank, due on Wednesday, but the key interest rate is expected to stay unchanged.

"On the one hand, the Polish economy is experiencing strong growth and increasing capacity constraints, but on the other hand inflation pressures, especially core ones, remain subdued in line with experience in other places," said Vladimir Miklashevsky, Danske Bank's senior economist.

The Hungarian central bank kept its benchmark rate on hold, at 0.90 percent since May 2015 and gave no signal that it may change it.

Despite having core inflation at 2.4 percent in January-November last year, the central bank decided to support the growth of the economy by easing monetary conditions instead of tightening. The bank is flooding the market with forints providing liquidity.

The National Bank of Hungary "is willing to do anything in its power to meet its goals of lower rates and weaker forint," observed Gergely Urmossy, analyst at Erste Bank.