Central banks’ meetings, inflation and sector’s performance

This week in CEE

This week, there are three central bank meetings in the region. In Poland and Romania, we expect stability of rates, while in Serbia we acknowledge the possibility of another 25bp hike so that the key policy rate reaches 5.5%. January’s inflation footprints will be published in several CEE countries. The beginning of the year may bring an increase in headline numbers, due to adjustments in administered and regulated prices. Finally, the industry and retail sectors’ performances in December will be known for all of the countries. The growth rates should reflect the broad-based economic slowdown. We acknowledge at the same time that the bottom was most likely reached in the last quarter of 2022, and we expect improvement throughout 2023, as suggested by the change in the sentiment indicators. Having said that, we will be revising the growth forecast for Czechia for 2023 and we are leaning toward a scenario of no recession this year.

FX market developments

Another wave of strengthening of the local currencies took place at the end of the last week. Apart from the Romanian leu, all other currencies appreciated following the ECB decision on Thursday, with the Hungarian forint again outperforming its peers. Since the beginning of the year, the forint has already appreciated by more than 3% against the euro. The Czech koruna also has been gaining vs. the euro. The Czech National Bank communicated at its meeting last week that it may keep interest rates stable for a longer period of time, revising its inflation and growth forecast up compared to the November projection. We will be reviewing our interest rate outlook as well.

This week, there are three central bank meetings in the region. The policy rate should remain at 6.75% in Poland and 7.0% in Romania, while in Serbia it may be lifted to 5.5%. We do not expect any major impact on the local currency markets after the central bank meetings, as the FX market is clearly driven by global factors. The development of inflation rates and better than expected economic development seem to be behind the recent changes.

Bond market developments

CEE bonds rallied strongly in reaction to Thursday’s ECB meeting, at which the central bank delivered a 50bp hike of key rates (in line with expectations), but explicitly committed to only one more hike, followed by an evaluation of the subsequent path. Some market participants read this as a potential pause or the end of the current tightening cycle in the Eurozone, leading to a decline of sovereign bond yields. After tapping the international market with 2026 and 2029 Eurobonds worth EUR 2bn at the beginning of last week, a strong addition to the USD 4bn raised at the beginning of January, Romania has covered one third of its full-year financing needs already at the end of January and announced its intention to return to international markets only in 2H23 with either a sustainable or green bond. In the meantime, they will focus on local bond issuance, where they currently see hefty demand. This week, they will reopen ROMGBs 2024, 2028 and 2031. Hungary, Czechia and Croatia will offer various T-bills, while Serbia and Czechia will be selling T-bonds, with the latter adding floaters.

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