No change expected in Romania’s rating and outlook

There are several data releases worth watching at the end of this week. On Thursday, flash 2Q26 GDP will be released in Hungary and Czechia, and we expect solid q/q growth. Serbia will follow with its 2Q26 GDP release on Friday, alongside retail sales and industrial output growth in June. On Friday, Poland, Slovenia and Croatia will show July’s flash inflation. Headline inflation may be prone to increases given the rise in commodity prices as the situation in the Middle East has escalated. In Poland, the end of the temporary reduction of tax on fuels may additionally push the headline up. On the other hand, easing food prices should outweigh the negative effect of fuel prices. Finally, on Friday after market close, Fitch will review the rating and outlook in Czechia, Croatia and Romania. While Romania is definitely in the spotlight, we expect no changes in any of the abovementioned countries. &nbsp

FX market developments

The ECB Governing Council decided to leave key interest rates unchanged. Further, it considers itself adequately positioned to manage the current uncertainties. Energy prices (oil, gas, and electricity) will remain a crucial factor in assessing the ECB’s monetary policy in the short term. Most recently, the Brent price of oil went up toward USD 100 per barrel. Such development will lead to a repricing of inflation expectations and possibly central bank action in the region as well. FRA 9x12 increased in Czechia, Hungary and Poland over the last couple of weeks. CEE currencies showed mixed performance last week, with the Czech koruna and the Polish zloty slightly strengthening against the euro at the end of the week. Finally, the Hungarian central bank delivered a rate cut and the key policy rate is currently at 5.75%. Moreover, the central bank signaled that monetary easing is likely to continue in August despite less favorable global developments. In Czechia, by contrast, we have heard a more hawkish tone, with central banker Kubíček admitting there is a possibility of a further rate hike by year-end. In Poland, MPC member Masłowska said the July central bank projection points to the next rate move being a cut, possibly still in 2026, while central banker Kotecki believes the current level of Poland’s interest rate is close to optimal.

Bond market developments

Long-term yields have increased across the region as the market has again begun to consider the possibility of rate hikes given the development of commodity prices in response to the escalation of the Middle East conflict. Czechia’s President Pavel vetoed the budget-rules amendment, warning it would ease government debt issuance and weaken parliamentary oversight of public finances. The act is rather symbolic, however. Romania’s parliament will be recalled from its summer recess for a session on July 27-31 to debate draft laws that are key milestones in the country’s recovery program needed to obtain EU funds. We believe the process should be smooth. Demand for Romanian government paper meets supply and this week Romania is set to sell 2031 and 2040 government paper. Czechia and Poland are also scheduled to place government bonds on the market on Wednesday.

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