More central banks’ meetings

The week opens with the PMI releases in Czechia, Hungary and Poland. Further, there are more central bank meetings scheduled this week. On Wednesday, Poland holds its rate-setting meeting. On the one hand, inflation keeps declining, while on the other hand, the exchange rate remains stable, but relatively weak. We believe, however, that the dynamic fall of inflation will be decisive and we do not exclude even a 50bp cut. On Thursday, the Romanian central bank is expected to keep the policy rate flat at 7.0%. In Serbia, on Friday, we should also see no change in the key interest rate. Other than that, Czechia, Hungary, Romania and Slovakia will publish retail sales growth in August. Hungary at the top will release industrial output growth, and we should be able to get a pretty accurate estimate of economic growth in the third quarter, as the question of whether Hungary will exit recession has been open so far. Finally, Hungary and Slovenia will release trade data, while Romania and Serbia will release producer prices in August. On Friday, after the market closes, we might see revision of the rating and outlook of Croatia by Fitch, Slovenia by Moody’s, and Serbia by S&P. We see possibility of positive rating action (most likely change of the outlook to positive) in case of Croatia.

FX market developments

Throughout the week, the Czech koruna diverged from the Hungarian forint and the Polish zloty and appreciated against the euro. The Czech central bank kept the policy rate unchanged and gave no clear guidance on when monetary easing would begin. Although the data has been mostly disinflationary, the central bakers remain rather hawkish and prefer not to rush, which is a considerable risk to our call for the first interest rate cut in November. The Hungarian central bank normalized interest rates and flagged a slower pace of monetary easing ahead than the 100bp in recent months. The tone of the communication led us to revise our year-end forecast for the key interest rate to 11.5%. This week, Poland, Romania and Serbia hold rate-setting meetings, and we see Polish monetary policy as the only one that may act this week, especially since the inflation rate in September dropped to 8.2% y/y, according to the flash estimate. The only factor that may hold off the interest rate cut is the development of the Polish zloty, which weakened substantially after September’s decision. We believe, however, that the downward trend of inflation is strong enough to ensure further monetary easing, even with a 50bp cut.

Bond market developments

Last week, CEE government bond markets followed developments on major markets and experienced about a 10-15bp w/w increase in 10Y yields, with only Hungary as an outlier. In Hungary, 10Y yields increased much more – almost 50bp w/w. We suspect that the relatively cautious wording of the central bank, which also scaled back expectations regarding the magnitude of the rate cuts – FRAs 6x9 increased 60bp w/w and 12M yields implied from FX forwards jumped 50bp w/w – could be behind this move. Another factor could be the fiscal slippage, which still has to be addressed by the government. Overall, we believe that the central bank will be cutting interest rates at a slower pace compared to previous months while keeping an eye on the EURHUF. This week, Romania will reopen ROMGBs 2026 and 2028, Czechia will offer T-bonds and Hungary various T-bills.

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