September inflation data will be in focus this week. Inflation continues to head south, as hinted at by the already published flash estimates for Poland and a couple of EA countries. The most striking decline of inflation should be observed in Hungary, as the sharp increase of gas prices for households recorded by the statistical office a year ago will enter the base for the calculation of y/y headline inflation, which is to decline from 16.4% to 12.4%. In Czechia and Romania, headline inflation is to drop by 1pp, while in Slovakia about 0.8pp. Furthermore, CEE countries are to publish industrial production and trade balance data for August. Although industrial output growth should have remained in the red in August in a y/y comparison, the contraction should me milder compared to July’s growth rates. This week, the IMF will publish its new World Economic Outlook forecasts, likely pointing to further downward risks to global growth.
FX market developments
CEE currencies gained last week, on a more cautious monetary stance among central banks, which tried to calm expectations of a fast reduction of interest rates. Indeed, Poland’s central bank delivered ‘only’ a 25bp rate cut last week and avoided the temptation to make another big move ahead of the general elections scheduled for the weekend. Minutes from September’s MPC meeting in Czechia revealed that the debate over a rate cut has already started at the CNB, which triggered a negative reaction by the Czech koruna. However, after reading the details, it seems that many MPC members are still opposing rate cuts and prefer to wait for more data, as they do not want to make a decision based on forecasts. At this point, we have moved the start of monetary easing in our forecasts from November to December, but do not rule out the later start.
Bond market developments
CEE bond yields increased last week in reaction to higher yields on global markets. Hungarian 10Y yields touched 7.7%, being about 70bp higher compared to mid-September. The Czech 10Y yield moved for a couple of hours above 5%, the highest level seen in the last seven months. This week, Romania will reopen ROMGBs 2031, 2033, Poland will sell T-bonds, Czechia floaters and, on top of that, Czechia, Hungary and Slovenia will offer T-bills.
