Will Hungary cut interest rates?

The Hungarian central bank is set to hold an interest rate meeting. It should be worth watching, as it seems that monetary easing could be resumed. Although this is not our baseline and we lean toward stability of rates in February, we would not be surprised if the cut is delivered. Apart from that, Hungary will publish its unemployment rate and producer prices at the end of the week. Croatia will release 4Q25 GDP data, including the growth structure. We expect solid growth dynamics at around 3% there. Other than that, Croatia is scheduled to release detailed inflation data, its unemployment rate and producer prices. In Serbia, we will see the performance of industry and the retail sector in January as well as producer prices and wage growth. While industry was most likely heavily impacted by the NIS closure, retail sales should have grown at the beginning of the year. Retail sales data will also be published in Slovenia and Poland. Slovenia should also see the release of February’s inflation, scheduled for Friday, alongside producer price data. On Friday, after market close, Fitch Ratings is scheduled to review Poland’s rating and Moody’s is scheduled to review Slovenia’s rating.

FX market developments

Despite some intra-week volatility, the FX market was rather stable in a week-to-week comparison. The EURCZK and EURPLN remain mostly unchanged. The EURHUF is under the influence of the coming monetary policy meeting, at which monetary easing may be restored. At this point, however, we lean toward a scenario in which the interest rate is kept at 6.5%. As for other news regarding monetary policy, Romania’s central bank held a rate-setting meeting and kept the policy rate flat. The governor’s press conference, however, prompted us to revise our interest rate forecast. He said that he expects inflation to drop from around 10% last year, although he cautioned that policymakers were in no rush to cut interest rates. So far, we have seen May as the likely timing for the first interest rate cut. We now shift our expectations to August and see an overall lower magnitude of monetary easing in 2026. We adjust the key policy rate to be at 5.75% at the end of the year, up from 5.25% previously.

Bond market developments

The long-term yields have moved down across the region, with the exception of Poland, where 10Y yields have been holding relatively stable. In Hungary the decline of the long end of the curve is driven by restored expectations about monetary easing that may come as soon as February or March. Romania’s Constitutional Court ruled in favor of legislation that increases the retirement age and limits judicial pensions. The pension reform was an obligation under the terms of Romania’s recovery and resilience program, giving the nation access to a portion of EU funds. Croatia and Slovenia tapped international markets. Croatia placed a 10Y tenor sized at EUR 2bn, thus meeting 50% of the FY issuance target (the remainder is anticipated to happen on the local market). Demand has been strong, as books were reported in excess of EUR 8bn, allowing the final deal to be priced at MS+55bp. Slovenia sold EUR 750mn in 2036 tenor, with the final spread set at MS+35bp. Demand was also strong, with the order book reported in excess of EUR 6.8bn.

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