Flash 2Q24 GDP estimate and July’s inflation

This week is going to be quite eventful in the region. First, the flash estimate of GDP growth in the second quarter will be published in Czechia, Hungary and Serbia as well as in the Eurozone. We expect the countries in the region to maintain solid q/q expansion. Second, flash inflation estimates will be released in Croatia, Poland and Slovenia as well as in Slovakia within the HICP flash estimate for the Eurozone. Further, throughout the week, June’s retail sales and/or industrial output growth will be published in several countries (Slovenia, Croatia, Hungary, Serbia). Finally, the Czech central bank holds a rate setting meeting and further monetary easing should be expected. The only open question is the size of monetary easing and whether the Czech central bank will slow the pace from a 50-basis point cut to a 25-basis point cut. At this point, we see a 25-basis point cut to 4.50% as the more likely scenario, due to the persistent cautiousness of the majority of the Board.

FX market developments

Throughout the week, the Czech koruna and Hungarian forint weakened against the euro, while the Polish zloty was relatively stable, with the EURPLN close to 4.28. This week, the Czech central bank holds a rate setting meeting, and we expect a debate between a 50-basis point cut and slowing the pace of monetary easing to a 25-basis point cut. Vice Governor Frait said that the central bank arrived at the point at which fine-tuning of monetary policy begins. He will be deciding between a 25- and 50-basis point cut at the upcoming meeting, due to the surprisingly low inflation in June. Inflation falling more than expected prompted the Hungarian central bank to continue with monetary easing in July, delivering another 25-basis point cut, as a result of which we marginally lowered our year-end forecast of the key interest rate to 6.25% (from 6.50%). As for other central banker comments, in Czechia, Holub would support switching the pace to 25-basis point cuts so that the key interest rate would be expected at slightly below 4% at the end of the year. In Poland, Monetary Policy Council member Duda said that the central bank may start discussion about monetary easing only in the second half of 2025.

Bond market developments

The long end of the curve moved lower across the region throughout last week. The flash PMI indices for Germany and the Eurozone were quite disappointing. Further expectations for monetary easing in the US beginning in September have recently been rising more visibly. Romania saw solid demand for local currency bonds last week and sold more than targeted. This week, only Poland will hold bond auctions on Monday; otherwise, the auction calendar is quite empty.

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