However, having updated his Eastern European (Baltic) excel sheets recently he feels compelled to move in with some observations on the evolution of bank lending in the Baltics and why investors should be a little bit weary of buying into the main trend at the moment where high inflation rates are leading markets to price in revaluation across the board in an Eastern European and Russian context. Basically, we are observing that economic agents are shifting their liabilities into Euros which, we should remember, is perfectly rational if we expect the purchasing power of the domestic currency to increase or if interest rates are lower for Euro denominated loans. However, as I also showed recently in the context of Lithuania the negative interest rate spread in favor of Euro denominated loans seem to favor Euro denominated loans. A favorable interest rate spread over domestic currency loans as well as an expectation that the domestic currencies should increase in purchasing power on the back of strong inflation pressures and thus perhaps an expectation that Euro membership is not as far away as it may look. Read More