Inflation is still above target in most of CEE

On the radar

• Industrial output growth in Romania declined by 7.6% (SCA) in March.
• Inflation rate in Slovakia eased to 3.7% y/y in April.
• Czechia will publish current account data for March at 10 AM CET.
• In the afternoon, at 2 PM CET Poland also releases trade data.
• Hungarian central bank will release the minutes from the meeting, today.

Economic developments

Slovakia’s release of inflation rate (at 3.7% y/y in April) completes the price developments in April for the whole region. Apart from Romania and Slovenia, headline inflation eased in other countries. In Romania inflation stagnated compared to the previous month, which we consider a surprise to the upside. Due to this fact, and in order to account for a more frontloaded depreciation of Romanian leu, we revise up our year-end inflation forecast at 4.0% y/y from 3.7% y/y. This is in a no tax change scenario. In other CEE countries, inflation is slowly declining, and the recent drop of energy prices is a positive factor for price development. Despite an easing trend, the inflation rate remains above the central banks’ target in all countries but Czechia. Inflation in April declined to 1.8% y/y in Czechia, the lowest year-on-year inflation figure since March 2018 and marginally below the 2% central bank target. The central bank points to the elevated inflation of services that should warrant cautious approach regarding monetary policy. In the months to come, external factors such as low energy prices should help inflation to remain contained. Expectations for slower growth globally will limit the demand pressure as well.

Market movements

While Romanian leu is close to 5.10 against euro, other CEE currencies remain quite strong with EURCZK below 25 level, EURHUF at 403 and EURPLN at 4.23. Romanian long-term yields have declined since the beginning of the week and 10Y yields is currently close to 7.8% (down from above 8% last week). Romania sold more euro-denominated debt on the domestic market than planned as it raised EUR 1.6 billion in notes maturing in May and December next year. Over the upcoming weekend, Romania holds a second round of presidential election. In Poland, central banker Janczyk said he would like to see another 50 basis points cut this year after Polish central bank cut the key policy rate to 5.25% in May.

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