Hungarian central bank to sustain hawkish tone

The key event of the week will be the Hungarian central bank meeting on Tuesday, and stability of rates is the most likely scenario. Other than that, we will see producer prices development in October in Czechia and Slovenia. Serbia and Slovakia will release current account data for September. In Croatia and Slovakia, we get to see data on the labor market, namely the unemployment rate in October and wage growth in September in Croatia. S&P is scheduled to review Slovenia’s rating on Friday after market close. This week, we plan to publish our reaction to flash 3Q25 GDP data, including initial growth, inflation, and the interest rate outlook for 2026, so stay tuned.

FX market developments

The Czech koruna and the Polish zloty have strengthened against the euro more visibly over the last week. The EURHUF has been holding close to 384. Central bank meetings in Romania and Serbia did not bring any change in the key interest rate. The Romanian central bank revised the inflation forecast up and sees the inflation at the end of 2025 and 2026 at 9.6% and 3.7%, respectively. We believe monetary easing will be resumed in both countries over the course of 2026. As for other news, the Czech central bank made its first-ever purchase of cryptocurrencies, although in a very small amount (EUR 1mn), and they are not part of reserves. The portfolio will serve as a testing ground to give the central bank experience in holding digital assets and will be evaluated in two to three years. This week, the Hungarian central bank holds a rate-setting meeting, and we see the key interest rate as flat at 6.5%. The hawkish tone is here to stay, with inflation holding at 4.3% for the last couple of months.

Bond market developments

Last week, Croatia and Hungary communicated the prospects for 2026 budget deficits. In Hungary, due to a worse-than-planned macroeconomic trajectory and new economic policy measures, the government plans to raise the fiscal deficit target to 5% of GDP for both this year and next year. Compared to the original and, to be frank, quite optimistic deficit targets, the change is considerable. The government is expected to cover the extra financing needs through foreign currency bond issuance in early 2026. In Croatia, the draft budget for 2026 eyes the gap at 2.9% of GDP, which is roughly 1pp higher compared to the initial 2026 plans. Facing no pressures from bond investors and rating agencies, expectedly, the appetite for a more prudent fiscal policy course remained limited, hence dancing on the verge of the Maastricht criteria threshold remains the policy course. While long-term yields in Croatia were not impacted by the news on the budget deficit, in Hungary, the move on the bond market was quite pronounced. 10Y yields in Hungary are currently higher than long-term yields in Romania. This week, Poland, Romania and Slovakia have bond auctions scheduled.

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