Full picture of 2023 inflation development in CEE

At the beginning of the week, we will see the final December inflation numbers for Croatia, Poland and Slovakia. According to the flash estimates, headline inflation continued to fall at the end of 2023. These releases will complete the inflation development for last year. Apart from that, December’s producer prices will be published in Czechia, Poland and Slovenia. In Serbia and Slovakia, November’s current account balance will be released, while in Croatia, labor market data is due next week.

FX market developments

CEE currencies lost their strength from the beginning of the week and weakened against the euro in the last two days of the previous week. All three central banks that held rate-setting meetings kept the policy rate unchanged. In Poland, Governor Glapinski sounded quite hawkish at the press conference, saying that an interest rate hike could not be ruled out if inflation surges. MPC member Wnorowski said, however, that he does not see a need to return to monetary tightening at the moment. The Serbian central bank should wait until March before it starts to cut interest rates, while we stick to our call for Romania to only begin monetary easing in May. The Governor ruled out discussing rate cuts until inflation declines significantly and it becomes clear that the disinflation process is irreversible to avoid policy inconsistency. As there are no major releases scheduled in the region, the upcoming week should be dominated by global developments.

Bond market developments

Last week, 10Y LCY yields drifted down again, on downward surprises in CEE inflation readings. The most pronounced decline (-60bp w/w) took place in 10Y HGBs, as the market starts to price more aggressive monetary easing for the coming quarters - FRAs 6x9 have declined about 70bp since the beginning of year and stand at 5.5%, while the key rate is at 10.75%. This week, Vienna is hosting the CEE Euromoney conference, at which analysts and institutional investors should get more hints on the future direction of monetary and debt issuance from CEE country representatives (central banks and debt agencies). The interest will certainly focus on foreign issuance, given that 1Q is usually the busiest period when it comes to foreign issuance. Indeed, Hungary, Poland and Slovenia have already issued on foreign markets a combined volume of nearly EUR 8bn in the first weeks of January, while Romania may tap foreign markets in the coming weeks. Although there is a large redemption denominated in USD in 1H24, Romania may go ahead with the issuance of green bonds, which are typically denominated in EUR. We would expect a size of around EUR 2.5-3bn, given that Romania is likely to tap the Eurobond market three times this year.

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