Central bank meeting in Serbia and June’s inflation

This week, the Serbian central bank is holding a rate-setting meeting (stability of rates is our baseline scenario), while June’s headline inflation will be observed throughout the week. In Romania, we expect inflation to decline further, and a similar trend is expected in Hungary. Additionally, we anticipate inflation in Serbia to fall towards 4.1% y/y in June. The industry sector’s performance will be reported in Czechia, Slovakia, Slovenia, and Romania, while the trade balance for May is due to be released in Slovakia and Romania. These two countries will also publish wage growth, which has been quite dynamic in Romania for a while and accelerated in recent months in Slovakia. Finally, producer prices will be released in Serbia and Croatia.

FX market developments

CEE currencies began the week by weakening against the euro in the aftermath of the first round of snap elections in France that were won by Marie Le Pen and National Rally. During the course of the week, the Hungarian forint and the Polish zloty changed that trend and have been strengthening against the euro. The Czech koruna on the contrary remains weaker vs. the euro with the EURCZK remaining above 25. This week, June’s inflation and central bank meeting in Serbia are key events. In Serbia, we do not expect the central bank to take any action at the upcoming meeting.

Bond market developments

After the increase of long-term yields at the beginning of the week in all CEE countries, it was only in Hungary and Poland that long-term interest rates ended up higher last week compared to the previous one. In Poland, the new inflation and growth projections (higher inflation and lower growth path compared to the March 2024 forecasts), and Governor Glapinski's comments that interest rate cuts may arrive in 2026 at the earliest, could have added to the upward pressure on long-term yields. This week, Czechia, Poland and Romania plan bond auctions, while Slovenia and Czechia are set to issue T-Bills. In Czechia, the Ministry of Finance welcomed the narrowing of the budget deficit in June supported by higher tax revenues. Czechia remains on track, with fiscal consolidation planned for 2024.

Last week, we published the Bond Market Report, where we discuss the fiscal landscape in the region and present arguments supporting our call that, after some market correction from the beginning of the year, we expect the long end of LCY yields to drop with lower key rates.

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