Data overload in CEE: central banks, inflation, industry and retail

This week is going to be very busy in the region, as the calendar is packed with data releases. Let’s begin with central bank meetings in Romania, Poland and Serbia. In Romania and Serbia, further monetary tightening is a done deal, while in Poland, an increase of interest rates remains an open question. In October, the central bank announced a pause. This time, the MPC members will see the new inflation and growth projections, which may prompt some adjustment in the policy rate. The inflation rate for October will be published in Czechia, Hungary and Romania. In Czechia and Hungary, further increases of headline inflation are expected, while in Romania, it may drop marginally. Finally, industrial output and retail sales growth for September as well as trade balances will be released across the region. As far as the performance of industry is concerned, the low base from the previous year is likely to support the annual growth dynamics in Czechia, Hungary and Slovakia, masking the underlying moderation of industrial output growth. In Hungary and Slovakia, retail sales growth will also be published and is likely to reflect the effects of high inflation.

Last but not least, we put the Czech growth forecast under revision and expect 2023 economic growth to be lower than the previously estimated 0.9%. Although we most likely will not pencil in a contraction next year, as the Czech National Bank did (November’s forecast for FY23 at -0.7%), the risks remain clearly to the downside.

FX market developments

Throughout the week, currencies in the region appreciated. The Hungarian forint strengthened the most, with the EURHUF going down toward 403 on Friday. The Polish zloty dropped below 4.70 vs. the euro, while the Czech koruna moved toward 24.5 vs. the euro. The Romanian leu also followed the pattern and remained relatively strong, given the current account position. As far as global factors are concerned, the recent Fed decision was of importance. Locally, the central banks' meetings remain in focus as well. The Czech National Bank confirmed the continuation of exchange rate interventions in the event of increased pressure on the koruna. This week, the Polish, Romanian and Serbian central banks hold rate setting meetings. Uncertainty regarding the outcome is present only in the case of Poland. Amid rising inflation, the central bank announced a pause in October, and it remains to be seen whether new inflation and growth projections will prompt further tightening. Ending the cycle of interest rate hikes could also affect the zloty, especially if inflation surges further.

Bond market developments

Hawkish comments from the FED chair following their 75bp rate hike decision last week sent yields in both the Euro Area and CEE higher. Slovak and Slovene 10Y yields went up about 20bp w/w, mirroring the increase in EUR IRS and Bund yields. Hungarian bonds received the strongest hit from the global increase of yields, as 10Y yields again moved above 10.5%, while Romanian and Serbian bonds experienced a decline in yields, benefiting from positive country-specific news, which eased the pressure on foreign financing. The NBR confirmed that, in October, their FX reserves were boosted by another tranche of grants and loan worth EUR 2.6bn received by the Ministry of Finance from the EU’s Recovery and Resilience Fund. Serbia reached a staff-level agreement with the IMF regarding a 24-month stand-by arrangement providing access to EUR 2.4bn (it still needs to be formally approved by the IMF board). This week, Romania will reopen ROMGBs 2025, 2032, 2036, while Slovenia and Hungary will offer T-bills and Czechia will sell T-bonds.

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