Regional central banks to stay on hold
|Three central banks are meeting this week, in Poland, Romania and Serbia, and we do not expect any changes in the policy rate in any of them. There are some risks of another interest rate cut in Poland as inflation declines; on the other hand, new inflation and growth projections may send the signal to hold off with monetary easing. October inflation rates will be published for Czechia and Hungary. While disinflation should continue in Hungary, for Czechia, we expect headline inflation to rise, due to a base effect (Saving Tariff introduced a year ago). Apart from that, September data on retail and the industrial sector will be released. Industrial output growth will be published in Czechia, Hungary, Slovenia and Slovakia throughout the week, while on Wednesday, Hungary, Romania and Slovakia will report retail sales growth. These releases will come shortly before the flash 3Q23 data. Other than that, Croatia and Serbia will publish PPI, Romania and Slovakia trade data.
FX market developments
The CEE currencies gained against the euro throughout the week. The EURCZK moved more visibly down after the Czech National Bank's decision to keep the policy rate unchanged at 7.0% at the last meeting. Global developments, in particular the FOMC keeping the benchmark rate stable in the US, also supported the currencies in the region. This week, there are three central bank meetings scheduled. The Polish and Romanian national banks will decide on interest rates on Wednesday, the Serbian central bank on Thursday. We incline towards a stability of rates scenario for all of them. In Poland, however, the market expects another 25 basis point cut. On one hand, inflation declined visibly in October to 6.5%; on the other hand, new inflation and growth projections may provide the impetus for MPC members to hold off with further monetary easing. Recent interest rate cuts may slow the pace of the inflation rate coming back to the target and the recent increase in the oil price is a source of upside risks.
Bond market developments
CEE bond markets reacted positively to the FOMC’s decision to leave its benchmark rate unchanged, followed by relatively dovish comments from the FED chairman. 10Y LCY government bond yields dropped 10-40bp w/w in CEE, with the largest decline observed in 10Y HGBs. Relief on major bond markets is especially supportive of further monetary easing in Hungary, which can be clearly seen in falling FRAs. Demand in auctions of government bonds was also affected by events from overseas. While the Romanian MinFin raised only RON 303mn vs. RON 400mn planned in the auction of ROMGBs 2036, in the aftermath of the FED comments, the MinFin enjoyed strong demand in the auction of 5Y ROMGBs and borrowed RON 1.6bn vs. RON 700m planned. Romania's MinFin also updated its issuance plan, according to which it seeks to borrow RON 5bn in November. T-bills worth RON 500mn will be offered already this week together with ROMGBs 2031 and 2033, both with targeted volumes of RON 600mn each. Hungary and Czechia will offer a combination of T-bills and T-bonds.
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