Czechia in the spotlight

The Czech central bank meeting will be a key event this week. We expect to see another 50bp cut in our baseline scenario. While inflation hit the central bank target in February, the Czech koruna remains relatively weak, holding off a faster pace of monetary easing. Apart from Czechia, Poland will already release industrial output and retail sales growth for February. In addition, producer prices will be published not only in Poland, but also in Czechia and Slovenia. Labor market data, such as unemployment rate and/or wage growth, will be released in Croatia, Poland and Slovakia. Finally, Slovakia will hold the first round of its presidential elections during the weekend (the vote will take place on Saturday, March 23). There are two frontrunners: Pellegrini, supported by the ruling coalition, and Korcok, associated with the opposition parties. On the rating evaluations front: Moody’s is scheduled to review Poland’s rating and outlook on Friday, after market close. No change is broadly expected.

FX market developments

The Hungarian forint was on a roller coaster over the last week. The conflict between the government and the central bank regarding the planned legislation on central bank functioning pushed the EURHUF higher. The decision to postpone and consult over the legal changes, on the other hand, helped the EURHUF to move back down. The public holiday in Hungary on Friday could have also influenced the currency move at the end of the week. The Czech koruna and Polish zloty strengthened against the euro over the last week.

This week, the Czech central bank meeting will be a key event, and further easing of monetary conditions is in the pipeline. Speeding up seems not to be an option, however, as the currency development is considered a pro-inflationary factor and many central bankers spoke with cautiousness about the next steps despite February’s inflation hitting the central bank’s target.

Bond market developments

Last week, 10Y CEE government bond yields drifted up about 10-30bp, mirroring the increase of yields on US Treasuries triggered by higher than expected inflation. Two CEE countries tapped international markets with their syndicated bond issues. Poland sold three tranches (5Y, 10Y, 30Y) of USD-denominated Eurobonds worth USD 8bn in total. In early January, Poland sold two EUR-denominated bonds (10Y, 20Y) worth EUR 3.75bn in total. Slovenia borrowed EUR 500mn through a 10Y Eurobond with a yield priced at MS+58bp, far cheaper compared to the Slovak 10Y Eurobond issued at the end of February with pricing at MS+100bp. This week, Slovakia will reopen SLOVGBs 2027, 2032, 2033 and 2035, Czechia will reopen CZECHGBs 2035, Romania will offer ROMGBs 2030, 2031, while Czechia and Hungary are scheduled to sell T-bills.

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