CEE: Stability of rates in Poland, Romania and Serbia

This week, there are three central bank meetings, in Poland, Romania and Serbia. We expect stability of rates in all of these countries. Other than that, we will see the inflation rate in Czechia and Hungary. So far, in the Eurozone and other CEE countries, we have seen inflation easing in June. In Czechia, inflation should slow down to 1.8% y/y, due to fuel prices. In Hungary, margin caps and lower oil prices and a strong forint are keeping price developments under control. Other than that, we will see the performance of the retail sector in Romania, Hungary and Slovakia, as well as industrial output growth in Hungary, Czechia, Slovenia and Slovakia. The trade balance will be reported for Czechia, Slovakia and Romania. Finally, Fitch is scheduled to review Serbia’s rating and outlook. In Serbia, parliamentary elections should take place in a few months, as President Vucic announced his resignation and a possible timeline for elections. 

FX market developments

CEE currencies have been relatively stable on a week-to-week basis. At the beginning of the week, some weakening against the euro was observed, but at the end of the week, the FX market in the region was gaining. Changes on the FX market in the region were driven mostly by global developments and the EURUSD movement in particular. It seems that interest rate hikes are being priced out in the Eurozone. Flash inflation in the Eurozone came in softer than expected (2.8% vs. the 3.0% market forecast) and the structure was quite favorable. Expectations regarding interest rate developments in the US have been adjusting as well. We continue to expect a rate hike in the second half of the year. This week, there are central bank meetings in Romania, Poland and Serbia, and we expect no change in key policy rates. Inflation eased in Poland to 2.5% y/y, due to food and fuel prices. At the July meeting, Poland’s central bank will also show new inflation and growth projections that may influence the central bank’s communication (toward a dovish tone). In Romania and Serbia, no change in key policy rates is also broadly expected.

Bond market developments

Long-term yields have declined slightly throughout the week in the whole region. Global developments were a key driver, especially the lower than expected inflation in June in the Eurozone, which affected the interest rate outlook in the Euro Area. As for bond market-related news, in Czechia, the state budget ended in a deficit of CZK 183.6bn in the first half of this year, which is CZK 31.2bn more than last year. In Hungary, Prime Minister Magyar revealed that the 2026 budget deficit will most likely be above 7% of GDP, even with access to European funds. With the flow of EU funds, it would most likely exceed 8% of GDP, according to Magyar. According to Finance Minister Andras Karman, Hungary will overhaul its budget process to restore credibility after years of fiscal slippage. As for Romania, Acting Prime Minister Bolojan announced that the country is drafting six laws that are crucial for tapping European Union funds. The laws will be sent for approval to parliament in a special session in the second half of July and a majority to support them should be reached.

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