Czechia to hike, Poland on hold facing S&P review

Global economic developments next week include the release of Eurozone inflation figures and a series of US economic indicators. Eurozone inflation is expected to have accelerated further in October, reflecting persistent price pressures, particularly from energy. In the US, attention will turn to labor market data, including Friday’s non-farm payrolls report. In CEE, at the beginning of the week, PMI releases will offer an early indication of economic activity at the beginning of the fourth quarter. In Czechia, the central bank is expected to raise interest rates, as recent economic data and hawkish comments from board members suggest that further monetary tightening may be warranted. At the same time, the latest GDP figures point to somewhat weaker economic momentum (3Q26 at 1.6% y/y, below market expectations). Inflation is expected to remain close to 2.5% in October, supporting the case for maintaining a restrictive monetary policy stance despite softer growth. In Poland, the Monetary Policy Council will announce its interest rate decision on Wednesday. The meeting comes shortly after the release of October's flash inflation estimate. Inflation surprised positively, declining to 3.5% y/y. Such a development makes an interest rate hike at the upcoming meeting unlikely. More importantly, Poland will also face a sovereign rating review by S&P on Friday. While we expect the rating itself to remain unchanged, a revision of the outlook from stable to negative appears highly likely. In other CEE countries, we will see a series of macro releases. In Serbia, 3Q26 GDP will be published. In Hungary and Czechia, industrial output growth is due, while in Hungary, Slovakia and Romania, retail sales will be released.

FX market developments

Global trends will continue to dominate financial markets, with elevated oil and gas prices remaining a major source of uncertainty. Both the Fed and ECB left their key policy rates unchanged last week, but further tightening in December remains likely. ECB President Christine Lagarde delivered a particularly hawkish message, indicating that the direction of monetary policy is clear if the current economic assessment remains broadly unchanged. In the region, attention will turn to the upcoming central bank meetings in Czechia and Poland. We expect the Czech National Bank to raise its policy rate, while the National Bank of Poland is likely to keep rates unchanged following the surprisingly low October inflation reading. Beyond monetary policy, Poland faces additional institutional uncertainty. The term of Lipinski as a management board member expires and, unless a replacement is appointed, the management board could fall below the statutory minimum. This could raise legal questions about the functioning of the central bank and potentially weigh on Polish assets, particularly the zloty. Importantly, monetary policy decisions remain the responsibility of the separate Monetary Policy Council. Finally, in Serbia, markets will continue to assess the implications of the parliamentary elections and the transition to a new government, which is likely to take some time. Although the election outcome has been welcomed by EU representatives and the incoming political leadership has adopted a more conciliatory tone towards European integration, uncertainty remains about the direction of economic and foreign policy, particularly relations with Russia.

Bond market developments

Although last week’s decisions by the Fed and ECB to leave interest rates unchanged came as no surprise, long-term yields in CEE edged down. CEE bonds were supported by falling US Treasury yields, as disappointing earnings reports from tech companies triggered equity selloffs and safe-haven flows into government bonds. Interestingly, the spread between 10Y HGB and CZGB yields has again narrowed to just 10bp. Although we expect the CNB to raise its policy rate to 4% this week, Czech interest rates should remain well below Hungarian rates for a considerable period, as the Hungarian central bank will need to establish a credible track record of bringing inflation down ahead of euro adoption. We believe that a change in Poland’s rating outlook to negative by S&P, which we expect this Friday, should not surprise bondholders, especially given that Fitch already took a similar step during the summer.

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