CEE: Poland on hold, Czechia expected to hike

Erste Bank Research Team Erste Bank

On the radar

Poland kept the central bank rate at 3.75%.
Hungarian industrial production grew 8.2% y/y in September.
Czech CPI inflation slowed to 2.4% y/y in October, while Croatian CPI inflation rose to 4.9% y/y in October.
Slovenia posted a trade surplus of EUR 1.58bn in September.
Czech central bank rate decision is due today.

Economic developments

Today, Czechia’s central bank holds a rate-setting meeting. Czechia clearly stands out as the only country in the region tightening monetary conditions: the Czech National Bank raised its key interest rate by 25 basis points to 3.75% in June. Another increase, to 4.0%, is expected today, reflecting persistent core and services inflation, solid wage growth, and renewed upside risks from energy and commodity prices. Elsewhere, central banks have either maintained stable rates (Poland, Romania, and Serbia) or eased monetary policy (Hungary) since the outbreak of the war in Iran. Poland’s Monetary Policy Council kept the reference rate unchanged at 3.75%, as the recent moderation in headline inflation, supported by government subsidies, is balanced against continued uncertainty surrounding fiscal policy, wages, and external price pressures. Elevated commodity prices are the key factor behind the update to the growth and inflation projection. The inflation path for 2027 is noticeably higher than in the July projection and rises above the NBP’s target range. It returns to the target band only in 2028. The midpoints of the probability ranges for CPI inflation in 2026–2028 are 3.15%, 4.20% (versus 2.75% previously), and 2.90%, respectively. The GDP path looks very similar to that presented in the July projection. We continue to believe that the most likely scenario is for NBP interest rates to remain unchanged through the end of this year and throughout next year.

Market movements

Democrats won both chambers in the November 3 midterm elections, taking at least 54 Senate seats and ending unified Republican control. A wave of anger over Trump’s policies, particularly the role of the US-Iran war in pushing up the cost of living, helped the Democrats win the elections. Oil prices fell on expectations that the Democratic victory and control of both chambers could reduce the risk of a further escalation of the US-Israeli war against Iran. Brent crude is now trading below USD 100 per barrel. The implications of the US election results also boosted CEE currencies. All three currency pairs—EURCZK, EURHUF, and EURPLN—declined on Wednesday, with EURPLN returning below 4.40. Long-term yields fell across most of the region, with Romania being the exception. Finally, headline inflation in the euro area rose to a three-year high of 4.0% y/y from 3.8%, reinforcing expectations of another interest rate hike this year.

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Erste Bank Research Team

Erste Bank

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