Central bank meeting in Hungary, Polish GDP

This week in CEE

The Hungarian central bank meeting and release of 2019 GDP growth in Poland are this week's CEE highlights. In Hungary, stability of rates is broadly expected. We believe that, as long as the ECB sustains the current course of monetary policy, nothing should change in Hungary. FX swap transactions remain in focus after the central bank suddenly rejected all bids at its usual weekly FX swap tender last week. In Poland, we see GDP growth in 2019 at 4.2%. As the most recent data on industry performance was quite disappointing, slippage towards 4.1% cannot, however, be ruled out. As for other data releases in CEE, the December unemployment rate will be published in Poland, Hungary and Romania. In Croatia and Serbia, we get to see industrial output and retail sales growth for December. We expect some rebound of industry and solid retail sales number in both countries.

FX market developments

CEE currencies had their own local stories last week. The Hungarian forint again hit all-time lows, but then reversed course to some extent as excess liquidity declined during the week. All eyes are on Monday's FX swap tenders to see if the central bank wants to react or not. We think that the forint is unlikely to appreciate lastingly. Towards the end of the week, the Polish zloty was hit by concerns over the rule of law, due to the conflicting views of the Supreme Court and the government on the judicial overhaul. We see the zloty weakening a bit in any case, as the recent appreciation was a bit too strong compared to the trend. The CZK could also slide a bit weaker, as the central bank may refrain from a rate increase on February 6.

Bond market developments

Bond yields generally fell last week globally and in the CEE region. Haven assets gained on the anxiety over the Chinese coronavirus and comments from the ECB's Lagarde that there are still downside risks to the Eurozone economy. Yields on basically all LCY yields declined in CEE, with a somewhat lower fall of Polish and Romanian yields. Polish yields increased on Friday, due perhaps to some effects from the rule of law issue. Romania successfully issued a total of EUR 3bn in 12Y and 30Y Eurobonds. After the initial increase due to the higher supply, Eurobond yields declined as well last week in Romania.

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