March industry and retail in Poland

This week, the economic calendar is relatively empty. Only Poland is going to publish more relevant indicators toward the end of the week: industrial output and retails sales growth in March. The market consensus points to relatively strong, double-digit growth dynamics (11.6% y/y and 18.6% y/y, respectively). Further, the PPI Index in Czechia, Poland and Slovenia is due, as well as unemployment rates in Croatia and Slovakia. While in Croatia, the unemployment rate should decline, in Slovakia, we expect stagnation.

FX market developments

CEE currencies had a relatively calm pre-Easter week. Czech inflation accelerated to a new 24-year high in March, reaching 12.7% y/y. At its May meeting, the Czech national bank is likely to raise rates again and we expect 25-50bp hike from the current 5%. However, due to the uncertainty, anything between 0- 100bp is generally possible. Czech central bank governor Rusnok hopes the May hike “will be one of the last ones needed in this stage of rate increases”. A more hawkish hue was present in Vice-Governor Nidetzky’s claim that chances of rates starting to decline towards year-end have dissipated amidst the impact of the war in Ukraine. Yet, we still pencil in a small rate cut for November. Romania's headline inflation jumped to 10.15% in March, hitting a 17-year high, underscoring the need for more policy tightening – we expect a 50bp key rate hike to 3.50% in May. The Hungarian central bank left its one-week deposit rate unchanged at 6.15% for the third consecutive week, despite a generally weaker currency (courtesy of global risks and looming disciplinary procedure from the EU) and worsening inflation outlook.

However, it came as no surprise as the forint barely reacted to it. Polish central bank head Glapinski stated that the country’s inflation will hopefully decrease to the central bank target of 2.5% in late 2023, allowing a monetary policy easing cycle. The current NBP stance remains focused on tightening to tackle the elevated inflation. The ECB’s April meeting brought a small next step towards the normalization of monetary policy – the withdrawal of very strong support for the economy. A decision to end securities purchases in 3Q22 could be taken at the June meeting and would open the door for an interest rate hike. We assume a rate hike in December, as we see significant risks of a slowdown in the economy during the coming months.

Bond market developments

Last week, Croatia tapped the Eurobond market with a EUR 1.25bn (keeping the roll-over at 100%, as the same size matures in May) 10Y tenor priced at 2.975%. Demand was strong (books reported at EUR 3+bn), allowing for IPT tightening from MS+175bp to MS+150bp. Nevertheless, investors were sending a clear signal that the current issuance did not come cheap. The market was demanding a significant new issue premium, which was reflected on the long end of the curve, which moved up over the week, while the Eurobond spread widened. In Hungary, there was a visible correction, with 10Y yields dropping 20bp. This week, Czechia has the 2Y Eurobond issuance scheduled with EUR 50mn up to EUR 100mn planned.

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