Busy week ahead of CEE: Retail, industry, inflation and central banks

Three central bank meetings are scheduled for this week. First, the Polish central bank will decide on the policy rate on Tuesday. On Thursday, Serbia’s central bank holds a rate-setting meeting, followed by the Romanian National Bank meeting on Friday. We expect the policy rate to remain unchanged in all three countries at the first meetings of 2024. As for price developments in the region, Czechia, Hungary and Romania will publish December’s inflation numbers. The most pronounced decline in inflation is expected in Hungary. In Czechia, inflation should remain mostly unchanged, while in Romania, base effects kept inflation elevated in December. Further, several CEE countries will publish data regarding the performance of the retail and industry sectors. Retail sector performance in November remained influenced by real wage growth. As for industry, Hungary is worth mentioning, as new battery facilities were launched in November that may support industrial output growth. Finally, December’s producer prices will be released in Serbia and Croatia, November’s wage growth in Slovakia and Romania, and trade and current account data in several countries.

FX market developments

As for the FX market, the Hungarian forint began the year on a strong note, as the forint appreciated quite visibly against the euro over the last week. Looking back slightly into 2023, the Polish zloty appreciated against the euro the most (almost 7%), supported by the change of the government at the end of the year. The second-best performing currency in the region was the Hungarian forint, which gained vs. the euro, by roughly 5% throughout last year. On the other hand, the Czech koruna and the Romanian leu have weakened in 2023. This week, we do not expect any of the central banks to change the policy rate (Poland, Romania and Serbia have scheduled the interest rate decisions). In Poland, December’s flash inflation estimates surprised to the downside, arriving at 6.1% y/y, which may put the markets back into a monetary easing mood.

Bond market developments

Summarizing 2023 development at first on the bond market, long-term yields were visibly down over the last year in the whole region. The long end of the curve is roughly 300bp lower in Hungary, 200bp lower in Romania, and 150bp in Poland. We see monetary easing as a key factor for the development of the bond market in the region. The first week of 2024 saw a correction, as 10Y yields increased across the region by more than 20 basis points in Hungary and Romania. As for fiscal development, the Polish government presented the new 2024 budget to the parliament, increasing the deficit to PLN 184bn. The budget needs to be passed by the Parliament and presented to President by the end of January. In Romania, the 2023 budget deficit reached 5.7% of GDP, according to the latest press releases, while in Hungary it will be as high as 5.9% of GDP. Poland faced strong demand during the Friday’s bond auctions, while this week Czechia and Romania will be active on the bond market.

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