CEE: Inflation in Serbia and Romania to rise

September inflation releases in Serbia, Romania and Slovakia should match the upward trend observed in other CEE countries. In Serbia, headline CPI is expected to jump to 3.9% y/y in September, from 2.2% y/y in August (due to base effects), while in Romania, inflation is expected at 6.6% y/y, as opposed to 6.2% y/y in the previous month. In Slovakia, the HICP publication suggests no change in inflation dynamics in September, but the local release may differ and a marginal rise to 3.2% y/y, from 3.1% y/y in August, is penciled in. Poland will show the detail of September’s inflation. Other than that, Romania will publish industrial output growth in August as well as current account and trade data. Poland will also show its trade balance and export and import growth dynamics. Wage growth is due in Romania and Slovakia. Romania remains in the process of forming a new government (to be led by the new Prime Minister-Designate Luca Niculescu) to avoid snap elections. Importantly, Romania’s former ruling parties signaled early support.

FX market developments

Although CEE currencies have recovered slightly over the last week, in general, they remain weak against the euro. Global developments are weighing on the FX market in the region, as the EURUSD has moved toward 1.12. At the end of the week, President Trump's declaration on not attacking Iran before November’s mid-term elections supported the FX market, while oil declined. Local developments impact the EURRON the most. Romania’s former ruling parties signaled early support for the prime minister-designate and his attempt to form a government, which is positive for the Romanian leu. Central banks in the region have so far chosen to wait and see through the current inflation shock, as central banks in Poland, Serbia and Romania kept the key policy rate unchanged at last week’s meetings. In Poland, Governor Glapinski stated that if the inflationary risks increase (i.e. there is evidence of the fuel price impulse spreading to other categories), the central bank is ready to act. Another central banker, Kotecki, said that other MPC members were much more hawkish in October compared to the previous meeting. Serbia’s central bank also took a hawkish tone, suggesting action if inflation expectations de-anchor. In Romania, the central bank signaled a potential upward revision to the near-term inflation trajectory. Moreover, core inflation remains sticky, delaying the possible rate cuts until 2Q27. Finally, in Czechia, inflation landed at 2.5%, with core inflation remaining at an elevated level, which supports a scenario of monetary tightening in the coming months.

Bond market developments

A global bond sell-off resumed on Wednesday last week, pushing long-term borrowing costs in the US back to their highest levels in decades. The end of the week brought some relief to commodity and bond markets as fears about attacks on Iran declined. This week, inflation data in the US will likely move the bond market, while the inflation release will be closely watched. Locally, we have seen long-term yields moving south in all CEE countries except for Poland. In Romania and Hungary, the downward shift was most pronounced. In Romania, investors anticipated the S&P decision not to change the country’s rating and relief was reflected in the visible decline of yields at the beginning of the week. Prospects of the new government being formed also support a lower level of yields. Fiscal developments were in focus in Slovakia, where the government approved the 2027-29 general government budget draft, targeting a 2027 deficit of EUR 7.44bn or 4.9% of GDP, narrowing to 4.5% in 2028 and 4.0% in 2029 only if additional measures worth 0.8% and 1.4% of GDP, respectively, are adopted. In Slovenia, the finance minister presented the draft 2027 and 2028 state budgets to parliament, with 2027 revenue of about EUR 17bn against EUR 19.4bn in spending.

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