CEE: MNB to present updated projections
|The week ahead begins on Monday with a focus on Romania and Slovakia; we expect Romanian industrial production to expand by 0.4% y/y, supported by external demand and base effects, while Slovak CPI is forecast to reach 3.7% y/y, driven by service prices and solid wage growth that is keeping inflation above the Euro Area average. On Tuesday, Czech industrial producer prices are projected to remain negative at -1.50% y/y, due to energy price developments, while the National Bank of Hungary is expected to keep its base rate unchanged at 6.50%, likely emphasizing a continued hawkish stance, despite inflation entering the target range. Thursday features a heavy data release for Poland, including industrial production, PPI and wages, but the highlight will be the Czech National Bank's policy meeting, where we anticipate that rates will remain at 3.50%, accompanied by slightly hawkish communication. The week concludes on Friday with a series of real economy releases, including unemployment and wage data for Croatia, unemployment and the current account for Slovakia, as well as Slovenian producer price indices.
FX market developments
This week, two central banks - the CNB and MNB - will hold their rate-setting meetings. In both cases, we expect the key rates to remain unchanged. In Czechia, several MPC members have explicitly stated that they are satisfied with the current level of interest rates and see no reason to adjust them in either direction anytime soon. In Hungary, the central bank will release its new economic projections, and it will be interesting to observe how the updated fiscal outlook influences its inflation forecast. Last week, the Hungarian forint experienced heightened volatility amid market speculation that recently approved legislation - making it harder to remove the president - could represent another move by PM Orbán to secure his position (directly or indirectly) in the event of a lost parliamentary election. Meanwhile, the Serbian central bank kept rates unchanged, as the dinar remains under pressure due to the fact that oil refiner NIS is still paralyzed by US sanctions.
Bond market developments
Government bond yields in major markets and across CEE edged higher last week, with Romania being the only exception, posting a minor decline. The most pronounced move occurred in the CZGB yield curve, particularly at the front and mid-segments, as prospects for a rate cut remain distant. Markets have even started to price in the possibility of a rate hike as early as next year, driven by the Czech economy’s momentum and expectations of fiscal easing. MPC member Kubíček commented that speculation about an early hike is premature, though he acknowledged that, in the long run, a hike is more likely than a cut - unless external conditions change dramatically. Czech 10-year yields have risen about 50bp over the past two months, reaching around 4.75% last week, a two-year high. This week, Romania will reopen ROMGBs maturing in 2030 and 2040, while Croatia and Hungary will issue T-bills, and Poland will offer a range of POLGBs.
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