CEE: Hungary to continue monetary easing

On global markets, the ECB meets on Thursday and no change in key rates is expected, as inflation has not accelerated lately. Recent increases of commodity prices are also not high enough to warrant immediate action. In CEE, the Hungarian central bank will be in focus this week; a continuation of monetary easing is broadly expected. Another country that will present important data is Poland, as industrial output and retail sales growth in June will be published, thus completing the 2Q26 monthly data set. Both industry and the retail sector should show a solid performance in Poland. Other than that, we will see June’s unemployment rates in several CEE countries, namely Slovakia, Croatia, Poland and Hungary. Wage growth will also be released in Poland (June), Croatia and Serbia (May). Producer prices are due in Poland and Slovenia this week. On Friday, after the market closes, Moody’s is scheduled to review Czechia’s rating and outlook.

FX market developments

The Hungarian forint and Polish zloty weakened more visibly against the euro over the last week. Global tensions and the US strikes on Iran are key reasons behind such a development. In Poland, the echoes of the governor’s statement proposing a rate cut in September could have added to the recent market sentiment. However, other central bankers have not shown support for Glapinski’s suggestion. For example, central banker Zarzecki claimed he saw no space for a rate cut until the end of 2026. The global situation and increase in commodity prices play against any easing of monetary conditions. The inflation projection also favors stability of rates. This week, the Hungarian central bank will announce its interest rate decision, and we expect a 25-basis point cut to 5.75%. Only a worsening of the global situation and a more abrupt oil price increase could warrant a pause. At this point, easing inflation and the relatively strong forint (despite depreciation in recent days due to geopolitical tensions) support a continuation of the small easing cycle.

Bond market developments

With reescalation of the Middle East conflict, long-term yields have increased across the region. The biggest upward shift could be observed in Hungary and Poland (around 20 basis points). In Hungary, estimates of the budget deficit were presented; the budget gap of 7% of GDP this year and projected 6% of GDP in 2027 might not be very satisfying. The focus will thus be on further improvement of the budget gap. In Romania, political deadlock continues ahead of the evaluations of rating agencies (Fitch Ratings scheduled for July 31), but the YTD fiscal performance should warrant no change. The demand for government papers has weakened somewhat over the last week in Romania, however. Serbia issued EUR 500mn in a private placement last week that came as a surprise. The main purpose of financing should be military spending. Finaly, an offering of government retail bonds met with great demand in Czechia, as households purchased bonds worth CZK 74bn, which is several times more than expected. This week, Romania, Slovakia and Poland are set to sell bonds on local markets, while Hungary holds a T-Bill auction on Tuesday.

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