CEE: No rating change in Hungary

The upcoming week in the CEE region focuses on external balances, labor market developments, and producer-side price dynamics. On Monday, Romania’s current account data and Poland’s core inflation in April will be released. On Wednesday, attention shifts to the labor market and cost dynamics, with Hungary reporting wages for March. In parallel, Czech producer prices in April will give an updated view on pipeline inflation pressures, and Slovakia’s unemployment data will be published. Thursday is dominated by Poland’s comprehensive data release including industrial output, producer prices, wages and employment. We expect a slowdown in wages, while industry in April should lose some strength, as March was boosted by one-offs. Friday features Slovenia’s wage growth in March, Croatia’s unemployment (April) and wage data (March) and Moody’s revision of Hungary’s rating and outlook after market closes. We expect no change from Moody’s, S&P and Fitch Ratings in the following weeks.

FX market developments

Global developments have been the key driver of the depreciation of CEE currencies against the euro over the last week. Rising inflationary pressure and expectations for tighter monetary conditions are leaving a mark on the FX market in the region. The EURCZK ends the week at 24.3 and the EURPLN at close to 4.25 while the EURHUF has returned to 360. The recent appreciation of the forint (below 360 vs. the euro) may be considered excessive by policy makers. The exchange rate is a factor in monetary policy decisions, and we recognize that Hungary’s central bank is in a difficult spot. While inflation is relatively low, the expectations for interest rate hikes on the core markets complicate the decision-making process. Romania’s central bank left the key policy rate unchanged amid the upward revision of 2026 inflation expectations. We have also revised the year-end inflation forecast up and expect Romania to be in recession this year. The EURRON has stabilized around 5.20 after the volatility driven by political turmoil. Serbia’s central bank also revised the inflation and growth outlook. Governor Tabakovic expects inflation to be elevated in the second half of the year. Other central banks in the region also sustain a hawkish tone. In Poland, stability of rates is the most likely scenario, at least until the July meeting, when new inflation and growth projections are published. In Czechia, Governor Michl made it clear that monetary conditions should remain tight and discussions on monetary policy will focus on keeping the key policy rate stable or raising it.

Bond market developments

US inflation data for April resulted in an increase in long-term yields on core markets. Like in the Eurozone, interest rate expectations have moved up while the conflict in the Middle East persists. In the US, the market priced out the expected interest rate cuts from the beginning of the year, and it has been shifting toward an interest rate hike scenario. The Brent oil price remains elevated fueling concerns regarding inflationary pressures. We have seen a similar trend across the region apart from Hungary. 10Y yields moved up around 10bp in Czechia and Slovakia and as much as 25bp in Poland. In Hungary, long-term interest rates declined as demand for Hungarian papers remains strong, fueled by expectations for unlocking EU funds and the fast-track to the Eurozone. The spread vs. Polish bonds turned negative. Slovakia will look to raise EUR 500-600mn worth of bonds across different maturities. After Monday’s auction, we expect roughly 60% of this year’s borrowing needs to be completed in Slovakia. Further, Romania and Poland also have bond auctions scheduled in the upcoming week.

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