CEE: Serbia’s central bank to remain on hold

This week, Serbia’s central bank will make its interest rate decision, and we expect it to remain on hold not only on Thursday, but until the end of the year. Apart from that, Czechia, Slovakia and Slovenia will publish industrial output growth in July. We will also see a complete data set for August’s inflation across the region, as Hungary, Romania and Serbia are scheduled to release August headline CPI throughout the week. As far as price development is concerned, producer prices are due in Serbia and Croatia. Trade data will also be published in Czechia, Slovakia and Romania, alongside wage growth in Romania and Slovakia. Finally, on Friday after the market closes, we will see several rating and outlook reviews. In Romania, Moody’s should keep the investment grade rating as well. In Croatia, S&P is scheduled for a rating review. Currently, Croatia has a positive outlook; we expect no change in the rating.

FX market developments

The CEE currencies strengthened against the euro last week. The Hungarian forint gained the most, roughly 1% over the week, and the EURHUF went down toward 393, the lowest level in one year. The Czech koruna and Polish zloty gained, but to a lesser extent. We see global factors behind such developments, i.e. a response to the weak US jobs data and timing ahead of the Fed’s meeting in September. Last week, the Polish central bank lowered the key policy rate to 4.75%, as inflation has eased recently. We expect another 25 basis point rate cut this year, as Governor Glapinski also suggested there is space for monetary easing. This week, locally, Serbia’s central bank holds a rate setting meeting; we expect it to remain on hold. Most of the attention will go to the ECB meeting, however. From the ECB Governing Council's perspective, the latest data released is in line with its previous expectations regarding the inflation outlook. We thus expect key interest rates to remain stable, in line with market expectations.

Bond market developments

In contrast to developments on major bond markets, LCY bond yields in CEE edged higher last week. The only exception was Poland, where POLGBs benefited from a delivered 25bp rate cut and a statement from the central bank governor suggesting that a 50bp cut, a 25bp cut, or no change are all plausible options for the next meeting. In the Czech Republic, wage growth surprised to the upside, reinforcing the central bank’s current stance that there is no need to lower interest rates. The most significant move occurred in Romania, where 10-year ROMGB yields climbed above 7.5% a two-month high amid political uncertainty. The opposition initiated a no-confidence vote in response to the second reform package, which they oppose and criticize for being fast-tracked for approval. This week, Romania will reopen ROMGBs 2028, 2030, 2033, 2040 and Czechia will reopen CZECHGBs 2030, 2032, 2040. Czechia, Hungary and Slovenia will be selling T-bills and Poland will offer a variety of T-bonds.

Download The Full CEE Market Insights