Hungarian central bank in the spotlight

This week, the Hungarian central bank meeting will get the most attention, as markets are waiting for any indication on interest rate normalization. Apart from Hungary, the Czech central bank will hold its rate setting meeting as well and we expect no change in the policy rate. In Hungary, wage growth in January will be worth watching to evaluate how wage dynamics evolved at the beginning of the year, given the high-inflation environment. Further February’s producer prices will be published in Hungary and Slovakia. Toward the end of the week, a variety of data will flow in. In Croatia, Slovenia and Serbia, retail sales growth will be released for February. On top of that, Serbia will publish data on industry performance in February. On Friday, a flash estimate of March inflation is scheduled in Poland and Slovenia.

FX market developments

The weekly balance shows appreciation of the CEE currencies against the euro. While the Polish zloty strengthened only marginally, the Czech koruna and Hungarian forint gains were more substantial. Globally, the US Fed increasing interest rates by 25bp was the key event. This week, there are two central bank meetings in the region. While in Czechia we do not expect any major development, in Hungary the meeting is going to attract more attention, as markets are waiting for the indication on interest rate normalization. Recent market turmoil and the vulnerability of Hungarian forint in the aftermath of the troubles of the US SVB bank as well as Credit Suisse bank ma, however, delay the beginning of interest rate normalization. Wednesday’s decision from the government bars institutional investors and large retail depositors from taking advantage of central bank credit facilities yielding the 18% interest rate. This decision could weaken the transmission mechanism of monetary tightening pursued by the central bank and may affect the interest rate development as well.

Bond market developments

We saw a diverse development on the CEE bond market last week. While Czech 10Y yields went up 20bp w/w, government bond yields of other countries followed the global trend of falling yields. In Czechia, expectations on interest rates priced in forwards went up (FRA9x12+20bp w/w), as Deputy Governor Eva Zamrazilova indirectly ruled out her vote for a rate cut before September. On the other hand, the Hungarian yield curve moved down, with the mid-part falling 40-50bp w/w. After the government intervention in monetary policy tools (the government actually restricted access to some resident investors to depositing at the 1d deposit rate), the effective policy rate declined, which resulted in the collapse of forwards (FRA9x12 -70bp w/w). Next week, Romania will reopen ROMGBs 2027 and 2028, Hungary will sell T-bills on top of regular T-bond auctions and Poland will offer 2025 zero coupon bonds and POLGBs 2028, 2033 both as coupon bonds and floaters.

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