Czech January’s inflation reached the target

On the radar

• Romania tapped international bond market with issuance of its first green bond.

• There are no major releases scheduled for today in CEE.

Economic developments

January's inflation in Czechia (2.3% y/y) is the lowest in the region and practically at the central bank's target. It surprised to the downside arriving well below market expectations of 2.9% y/y. Inflation fell more than expected also in Poland and Hungary (published last week already). In Poland January’s footprint landed at 3.9% while in Hungary at 3.8%. In Poland inflation remains slightly above the tolerance band (between 1.5% and 3.5%) while in Hungary it was within the range around the target. In Slovakia, inflation eased to 3.9% while in Romania, on the other hand, inflation rate accelerated to 7.41% y/y in January mostly due to changes in indirect taxes and higher administered prices. As far as the outlook is concerned, throughout the year, we expect inflation in Czechia to move between 2% and 3% that is within the tolerance band. In Hungary and Poland, inflation is likely to increase in the second half of the year, while in Romania it should return to downward trend. Considering monetary policy implications, in Czechia there is a space for swift rate cuts. Hungary may want to increase the pace of monetary easing as well before the inflation trend becomes less favorable. In Romania, the Governor offered quite clear forward guidance at the press conference on Thursday, saying that the central bank discussed a potential calendar for rate cuts. It would be ready to cut rates after at least two months of inflation declining after the uptick in January. This is in line with our call for May cut, though if inflation surprises to the downside in the meantime, cut in April should not be completely ruled out.

Market movements

Romania is selling the first green bonds worth EUR 2 billion maturing in 2036 (priced at MS+300). Romania also tapped the international bond market with 7Y bond in the amount of EUR 2 billion (MS+270). After the auction, Romania will have most of its foreign financing needs completed for this year. Further, Romania has been frontloading issuance on both international and domestic markets to avoid political risk related to the election calendar in the second half of the year. In Czechia, the central bankers Michl and Zamrazilova released hawkish comments after inflation in January surprised visibly to the downside. Michl underlined that central bank will remain hawkish while Zamrazilova said that January’s footprint is not yet a victory in the fight with high inflation. In Poland, the MPC member Kotecki said that he would see only a small space for rate cut this year conditional on inflation development. On the FX market, CEE currencies remain weaker against euro this week, while the long-term yields showed mixed performance.

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