Monetary easing to begin in Poland
|There are three central bank meetings scheduled this week, in Poland, Czechia and Serbia. Poland is expected to begin with monetary easing and the only question is by how much the National Bank of Poland will lower the key interest rate. In Czechia, on the other hand, the monetary easing cycle is coming to an end, and the central bank will decide between a cut and keeping interest rates stable. In Serbia, stability of rates is broadly expected. Other than that, there are quite a few releases scheduled. The inflation rate in April will be released in Czechia and Hungary. Further, retail sales growth in March will be released in Hungary, Slovakia and Romania, as well as the performance of industry in Czechia, Hungary, Slovakia and Slovenia. Trade data is due in Slovenia, Czechia and Slovakia, as well as producer prices in Romania, Serbia and Croatia. Finally, on Friday after the market closes, Moody’s will publish its rating decision on Croatia, while S&P will decide on Poland. For both countries, no change is expected.
FX market developments
While the Czech koruna and Hungarian forint have strengthened slightly over the last week against the euro, the Polish zloty has weakened marginally. We have several central bank meetings in the region. In Poland, a rate cut is broadly expected, and the first move since September 2023 may be as large as 50 basis points. In Czechia, the decision will be between a rate cut and stability of rates, and it will be a close call. April inflation will be published a day before the central bank meeting and the policy-makers will see new growth and inflation projections. In Serbia, elevated inflation and political turmoil support a stability of rates scenario. We expect interest rate cuts only in the second half of the year.
Bond market developments
Long-term yields have declined across the region. In Romania alone, the 10Y yields remain elevated ahead of the first round of presidential elections scheduled for Sunday, May 4. The second round will take place in two weeks. Afterwards, Romania will have a small window of opportunity to announce a meaningful consolidation package ahead of the EDP review expected in early June. Slovakia softened the pace of consolidation and expects a budget deficit at 3.5% of GDP in 2027 and below 3% of GDP only in the following years.
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