CEE: Focus on inflation

Inflation releases in Romania and Serbia will draw a lot of attention at the beginning of the week. While in Romania, we expect headline inflation to remain elevated, in Serbia, it has been indicated that inflation is likely to drop toward 3%, from the 4.7% seen in August. The significant decline is the outcome of the introduction of caps on wholesale and retail margins for half a year. We adjusted our 2025 average inflation forecast accordingly downward. Slovakia will publish its inflation number on Wednesday. Poland and Croatia will have final readings available in the middle of the week as well. As for other price developments, Czechia will release producer prices. In Romania, Slovakia and Hungary, wage growth in August will be published as well. Other than that, trade and current account data is due in Poland, Romania and Serbia. Finally, Romania will release industrial output growth in August.

FX market developments

Last week, CEE currencies were slightly weaker against the euro. The central banks of Serbia and Romania kept their policy rates unchanged. Poland’s central bank, on the other hand, delivered another 25-basis point cut, given the inflation development. As for the outlook, Governor Glapinski suggested, quite explicitly, that there is more room for monetary easing and that he sees the interest rate at 4% at the end of the monetary cycle. This means two more interest cuts of 25 basis points, as the key policy rate is at 4.5%. In Hungary, we changed the interest rate outlook, given the persistent hawkishness of the central bank, and adjusted the EURHUF forecast accordingly. We currently see the EURHUF at 400 as the upper limit, and we anticipate a trading range around 390 for the time being. As for the key policy rate, while we previously forecasted gradual easing and an overall 100-basis point rate cut for 2026, we now expect interest rates to remain stable for most of the year.

Bond market developments

The long-term yields have declined marginally in most of the CEE countries. In Slovenia and Romania, the bond market was stable. In Romania, the Constitutional Court keeps delaying its ruling regarding the measures in the second fiscal package. Romania held several government auctions last week, with stronger demand for longer-dated papers. This week, Romania plans to sell government papers maturing in 2028, 2033 and 2035. Croatia will have a higher-than-expected budget gap in 2025, but the deficit should be kept close to the Maastricht criteria this and next year. Slovakia approved its budget for 2026 last week and sees the deficit falling toward 4.1% of GDP in 2026. Czechia is in the process of forming a government, but fiscal expansion in 2026 is a very likely scenario. Finally, the US imposed sanctions on Serbia's Russian-owned oil company NIS. NIS is a relevant contributor to the state budget, with estimates of roughly 10% of budget revenues being paid by the company. If the situation remains unresolved for a longer period of time, Serbia will face rising fiscal pressure as well as increasing nervousness among investors.

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