This week, the Hungarian central bank meeting is the key event in the region. We expect it to slow the pace of rate cuts from 100bp to 50bp.
In other words, we see the key policy rate at 12.5% after Tuesday’s meeting. Apart from that, not much will be going on in terms of data releases on local markets. Poland and Hungary will publish unemployment rates for September, Serbia will release wage growth for August, Slovakia will publish PPI, and Slovenia retail sales growth in September.
FX market developments
The FX market in the region gained throughout last week as all three currencies strengthened against the euro. The Polish zloty performed particularly well, supported by the election outcome in Poland and the potential change in government. The EURPLN went down from as high as 4.65 in mid-September to 4.42 at the beginning of the previous week. Polish MPC member Kotecki expressed his opinion that the Monetary Policy Council should now wait with further steps until the new government is formed and has planned policy for 2024 and ahead.
In Czechia, on the other hand, there were signals suggesting that monetary easing may begin toward the end of 2023. Governor Michl said that it is time to carefully move on with monetary policy. Another central banker, Holub, also said he could not rule out interest rate cuts as soon as this year. The steps will most likely be gradual and careful.
This week, the Hungarian central bank should continue with monetary easing but at a slower pace. It was clearly stated that the central bank is not on autopilot, which suggests explicitly lower interest rate cuts in the months to come. Further, turbulence on international bond markets and resurging geopolitical conflicts also favor a more cautious approach.
Bond market developments
CEE government bond yields drifted up in reaction to soaring yields on major markets, where the 10Y yields on German Bunds and US Treasuries climbed to nearly 3% and 5%, respectively. Among CEE local currency bonds, 10Y CZGBs and HGBs reacted the most (yields went up +20bp and +50bp w/w, respectively), further denting the gains from 1H23. This week will see heavy issuance of government securities.
Poland will reopen POLGBs 2025, 2029, 2033 and the 2028 floater, Romania will offer ROMGBs 2027, 2030, 2038, while Czechia and Hungary will sell T-bills and Serbia will issue an 8Y bond.
