Last central banks’ meetings this year

In Czechia and Hungary, the central banks will hold rate-setting meetings. These will be the last central bank meetings in the region this year. We expect no change in the key policy rate in Hungary (currently at 6.5%) mostly due to the weakness of the Hungarian forint. In Czechia, we assign a higher probability to stability of rates (at 4.0%) as opposed to another rate cut. Poland will release November’s industrial output and retail sales growth, which should indicate more or less accurately how the economy performed in the fourth quarter. Other than that, data on price developments will be released in several CEE countries. We will see the final reading of November’s inflation, and producer prices for November in Czechia, Poland, Slovakia and Slovenia. Finally, some labor market data is due this week, such as the unemployment rate in Slovakia and Croatia and wage growth in Poland and Croatia. This is the last issue of CEE Market Insights this year, we would therefore like to wish our readers a peaceful holiday season. The next issue is planned for Tuesday, January 7, 2025.

FX market developments

Last week, we saw the Polish zloty weakening against the euro, while the Czech koruna and the Hungarian forint strengthened slightly. Although the EURHUF moved below 410, the Hungarian currency remains weak and is the main concern for the central bank. We see EURHUF development as a key reason for the central bank to remain on hold at the upcoming meeting. In Czechia, we also see stability of rates as the most likely scenario. Overall, the Hungarian forint underperformed this year. It has weakened visibly compared to its peers. The Romanian leu has been kept stable as the central banks intervenes and maintains the currency’s development. We see the Romanian leu as likely to depreciate only after the presidential elections next year.

Bond market developments

Last week's ECB decision to cut interest rates by 25bp came as no surprise, thus resulting in a rather muted reaction in the bond markets. However, HGB and ROMGB yield curves moved down, especially the latter. Progress in forming a new government, along with initial indications of freezing some recently increased expenditures (which would be subject to indexation in January), gives us hope that political leaders in Romania are aware of the challenging fiscal situation. This week, Romania will reopen ROMGBs 2028 and 2030, Czechia will sell a floater, while Hungary and Poland will conduct their regular bond auctions. Additionally, T-bills will be offered in Croatia, Hungary, and Romania, while the Czech auction of T-bills has been canceled.

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