CEE: Hungary eyeing rate cut

The Hungarian central bank meeting will be the key event this week in the region. We believe that the central bank will lower the key interest rate at the meeting. Low inflation, a strong forint and prospects for a resolution of the Middle East conflict, reducing the risks of inflationary pressure in the future, support such a move. Other than that, Poland and Slovenia will release retail sales growth in May. Solid growth is expected in Poland, suggesting an acceleration of economic activity after the weaker 1Q26. There will be a series of labor market data across the region as well. The unemployment rate will be published in Croatia, Poland and Hungary and wage growth will be released in Poland, Croatia and Serbia. Finally, Hungary will show its current account balance and Slovakia will publish producer prices.

FX market developments

Global developments shaped the FX market over the last week. On one hand, the announcement of a peace deal between the US and Iran supported strengthening of CEE currencies against the euro. On Wednesday, however, after the US Fed meeting (stability of rates), some weakening took place. Repricing is the outcome of the commitment of the new Fed chairman to curb inflation and adjustments in expectations for the magnitude of rate hikes this year in the US. CEE currencies ended the week slightly weaker against the euro. As far as central banks in the region are concerned, the Czech central bank decided to increase the key policy rate to 3.75%, due to strong wage growth, the persistence of core inflation and elevated credit growth. At this point, we lean toward a stability of rates scenario for the reminder of the year. This week, the Hungarian central bank is holding a rate-setting meeting, and we expect a 25-basis point cut. Inflation has been very low, the EURHUF is holding close to 350 (the lowest in several years) and the global situation has stabilized. We will be watching the statement closely to look for signals regarding the monetary policy outlook in Hungary.

Bond market developments

CEE bond markets reacted positively to the announcement of a peace deal between the U.S. and Iran, even though it has not yet been finalized. The decline in crude oil prices close to USD 80 per barrel has raised hopes that inflationary pressures will remain contained, easing pressure on central banks to continue or start tightening. As a result, yields on 10Y LCY government bonds declined by around 10–20bp w/w. In Hungary, according to the latest poll, all participants expect a rate cut at this week’s meeting, with the median forecast pointing to a 75bp reduction in the key rate (to 5.5%) by year-end. In Poland, the discussion on rate hikes appears to be over unless there is a significant shift in external conditions. In Czechia, the decision to omit guidance toward further hikes after a 25bp increase also supported local bonds. This week, Czechia will reopen CZGBs maturing in 2036, 2036, 2038 and 2043, while Romania will reopen ROMGBs 2031 and 2035 and launch new issues maturing in 2028 and 2036. Additionally, Czechia and Hungary will sell T-bills, while Hungary and Poland will conduct their regular bond auctions.

Download The Full CEE Market Insights