Polish and Serbian central banks to stay on hold

This week is quite eventful in CEE. There are two central bank meetings scheduled in the region. In Poland, the rate setting meeting is scheduled for Wednesday; in Serbia, on Thursday. We do not expect any change in the key policy rates in both countries. Apart from the central bank meetings, Slovakia and Romania will publish the 3Q23 GDP structure. Czechia, Hungary, Romania and Slovakia will publish retail sales growth in October. Hungary and Czechia will release the industrial output growth as well. In Hungary, at the end of the week, November’s inflation figure will be released; it is expected to fall dynamically further. The PPI index will be published in several countries throughout the week and it is expected to confirm ongoing disinflationary tendencies in the CEE economies. Last but not least, Czechia will publish wage growth in the third quarter and the data may prove to be of high importance ahead of the December central bank meeting, as the decision on when to begin with monetary easing is still pending.

FX market developments

The CEE currencies maintained their relative strength against the euro throughout the last week. The Czech koruna and Polish zloty performed particularly well, extending their gains. Such a development was driven by global trends, as expectations for interest rate cuts by major central banks next year will be growing, amid falling inflation and easing demand pressure. This week, Polish and Serbian central bank meetings are the key local events. We expect both banks to remain on hold in December. While the Polish central bank is taking a pause in the easing cycle, Serbia still has to undergo monetary easing, which we expect to begin in the course of the first quarter. Other than that, nominal wage growth in Czechia (due Monday) may trigger comments from the central bankers, as the beginning of monetary policy is likely to be a matter of discussion at the December meeting. Recent data has proven to be clearly anti-inflationary (final 3Q23 GDP was revised down, amid falling inflation and expected fiscal tightening in 2024).

Bond market developments

The bond market in the region mirrored the development on major markets. In the US and Germany, long-term yields fell visibly, supported by the data on the US economy's recent cooling. Most of the CEE countries experienced a downward shift of the long end of the curve by at least 15 basis points throughout last week. In the region, the dynamic decline of inflation and ongoing or expected monetary easing support a lower level of yields as well. As for other news, Croatia approved its budget deficit widening to 1.9% of GDP in 2024, ahead of the upcoming election year. Croatia has fiscal space, as the budget was mostly balanced in 2023, in contrast to other CEE countries. In Czechia, the government will consolidate public finances in 2024. In Hungary, Finance Minister Varga announced that Hungary is committed to its 2.9% of GDP deficit target next year, down from around 5% of GDP in 2023. Based on the approved 2024 budget law, the planned net issuance will be HUF 2,643bn. As for FX financing, issuances of an international USD bond with a volume of up to USD 2bn and a benchmark-sized green EUR bond are planned in 1H24, with Samurai and Panda bond issuances planned for 2H24. The 30% threshold regarding the share of FX debt within total public debt remains unchanged. On the wholesale HUF bond market, AKK plans a negative net HUF bond issuance with just an HUF 1,872bn institutional HUF bond auction plan. Meanwhile, retail financing should preserve its crucial role, with planned gross issuance of HUF 4,298bn.

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