CEE: Flash inflation estimates in June

We focus our attention on inflation estimates in June in several CEE countries amid a fall of the oil price in recent weeks. Poland, Slovenia, Croatia and Slovakia (HICP estimate) will show the flash inflation numbers. As commodity prices decline, inflationary pressure should ease. Looking ahead, however, the possible removal of price caps will be pro-inflationary and food price developments may also weigh on inflation developments in the months to come. Attention will also go to manufacturing PMI releases in several CEE countries, namely Czechia, Hungary, Poland and Romania. The flash estimate of Composite PMI in the Eurozone suggests an improvement of the sentiment. Other than that, Croatia and Serbia will publish retail sales and industrial output growth. Serbia, Hungary and Slovenia will release their trade balances and Romania will publish its unemployment rate and producer prices.

FX market developments

CEE currencies have weakened against the euro over the last week, driven by the development of the EURUSD pair. The global geopolitical situation has stabilized, and this development has been reflected heavily in the oil price, which has declined substantially. The Brent oil price fell toward USD 73 per barrel, which is close to the pre-war level already. The adjustment is taking place in a more dynamic manner than we initially assumed it would. All in all, we would expect inflationary pressure to stabilize in the coming months. Having said that, we observe a change in expectations regarding the monetary policy outlook in Eurozone with rate hikes being priced out. Regrading the central banks’ stance, the Hungarian central bank lowered the key policy rate to 6% In Hungary and Governor Varga was quite explicit, saying he sees room for two more rate cuts by 25 basis points each over the summer and before the September assessment. The revision of the inflation forecast downward opens the way for monetary easing. We will be adjusting our inflation and interest rate outlook accordingly. As for Hungary's prospects of joining the Eurozone, Finance Minister András Kármán stated that the government's goal is to meet the Maastricht criteria by 2030, opening the path to euro adoption. Meanwhile, the minutes from the latest Czech central bank meeting show that the central bankers see the economy in a “comfortable situation”, with solid growth and relatively stable headline inflation near the 2% target. Persistent underlying price pressures warranted a tightening of monetary conditions at the last meeting. Looking ahead, Czech policymakers are expected to consider future interest rate decisions “very carefully.” In our baseline scenario, we expect policy rates to remain stable in 2026.

Bond market developments

A substantial drop in oil prices triggered a positive reaction in CEE bond markets, with 10Y yields declining by 10-25bp w/w, most notably in Hungary. A strong forint, together with reduced inflation forecasts by the central bank, appear to support further monetary easing in Hungary. 10Y HGB yields have fallen below 5%, while 6x9 FRAs are pricing in four 25bp cuts by 1Q27 (we expect three cuts by autumn). In Romania, although the political deadlock has not yet been fully resolved, a minority government is becoming the most likely scenario. The two current options for prime minister are PSD leader Sorin Grindeanu and PNL–USR–UDMR nominee Siegfried Mureșan. However, a political consensus might take more time to be reached. Meanwhile, the auction calendar is shifting into summer mode with lighter issuance. Romania plans to reopen ROMGBs 2038 and Hungary will sell T-bills alongside its regular auctions.

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