Three central banks are meeting this week, in Poland, Romania and Serbia, and we do not expect any changes in policy rates in any of them. In Poland, there is some risk of another rate cut as inflation declines; on the other hand, new inflation and growth projections may signal a pause in monetary easing.
October inflation data will be released for the Czech Republic and Hungary. While disinflation should continue in Hungary, we expect headline inflation to rise in the Czech Republic due to a base effect (savings tax introduced a year ago).
Elsewhere, September retail and industrial data will be released. The Czech Republic, Hungary, Slovenia and Slovakia will publish industrial production growth during the week, while Hungary, Romania and Slovakia will report retail sales growth on Wednesday. These releases will come just before the flash 3Q23 data. Otherwise, Croatia and Serbia will release PPI data, while Romania and Slovakia will publish trade data.
FX market developments
CEE currencies strengthened against the euro throughout the week. The EURCZK weakened more visibly following the Czech National Bank’s decision to leave the key interest rate unchanged at 7.0% at its last meeting.
Global developments, especially the FOMC’s decision to keep interest rates on hold in the U.S., also supported the region’s currencies. Three central bank meetings are scheduled for this week. The Polish and Romanian central banks will decide on interest rates on Wednesday and the Serbian central bank on Thursday. We are leaning towards a stable scenario for all of them.
In Poland, however, the market expects another 25 basis points cut. On the one hand, inflation fell visibly to 6.5% in October; on the other hand, new inflation and growth projections may prompt MPC members to hold back on further monetary easing. Recent rate cuts may slow the pace at which inflation returns to target, and the recent rise in oil prices is a source of upside risk.
Bond market developments
CEE bond markets reacted positively to the FOMC‘s decision to leave its key interest rate unchanged, followed by relatively dovish comments from the FED chairman. 10Y LCY government bond yields fell by 10-40 bps w/w in CEE, with the largest decline observed in 10Y HGBs. Relief in the major bond markets is particularly supportive of further monetary easing in Hungary, which is clearly reflected in falling FRAs. Demand in government bond auctions was also influenced by events abroad.
While the Romanian MinFin only raised RON 303m in the auction of 2036 ROMGBs vs. RON 400m planned, the MinFin enjoyed strong demand in the auction of 5Y ROMGBs in the aftermath of the FED comments, raising RON 1.6bn vs. RON 700m planned.
Romania’s MinFin also updated its issuance plan, aiming to raise RON 5bn in November. T-bills worth RON 500m will be offered as early as this week, along with ROMGBs 2031 and 2033, each with a target volume of RON 600m. Hungary and the Czech Republic will offer a combination of T-bills and T-bonds.
