Rates on hold in CEE

The economic calendar in CEE this week has three central bank meetings, alongside a series of other macroeconomic releases. The week begins with Romania’s PPI for June and Slovenia’s trade balance. On Tuesday, attention turns to the Czech Republic, where the flash CPI is expected. We forecast headline inflation at 2.7% y/y and 0.5% m/m, primarily driven by rising food and service prices. Wednesday brings a wave of industrial and retail data across the region. In the Czechia, industrial production and the trade balance are set to benefit from strong auto exports and favorable base effects, although these gains impacted by subdued German demand and the impact of U.S. tariffs. Romanian retail sales are expected to decelerate to 0.5% y/y, reflecting weaker consumer sentiment. Hungary will publish both industrial and retail figures, while Slovakia will release retail data only. On Thursday, market focus shifts to monetary policy decisions. The Czech National Bank is widely expected to maintain its policy rate at 3.50%, as recent pro-inflationary data support a cautious stance. Similarly, the National Bank of Serbia is anticipated to hold rates steady at 5.75%. Romania’s central bank will meet on August 8, and we expect it to keep the policy rate unchanged at 6.50%, in anticipation of accelerating inflation in the second half of 2025. Hungary’s CPI data is also due this week, with expectations of 4.1% y/y and 0.1 m/m. The week concludes with the release of Slovakia’s trade balance and industrial production figures.

FX market developments

The US dollar strengthened last week, following two key developments: the announcement of an agreement on US import tariffs from the EU and the FOMC’s decision to keep interest rates unchanged. The dollar appreciated by 3% w/w by Thursday, briefly dipping below 1.14 against the euro. Markets appeared to interpret the tariff agreement as more favorable - or at least less detrimental - for the US than for the EU, while the Fed’s stance was seen as a continuation of its 'wait-and-see' approach. Among CEE currencies, the Hungarian forint and Polish zloty were the most affected by the stronger dollar. The forint weakened to the 400 EURHUF level midweek. However, a weak U.S. labor market report released on Friday reversed much of the earlier moves. This week, monetary policy meetings in Czechia, Serbia and Romania are expected to result in no rate changes. Several Czech MPC members have explicitly ruled out supporting a rate cut, citing improved consumer sentiment, elevated inflation, limited risks from US tariffs, and the policy rate being close to neutral.

Bond market developments

CEE yield curves saw minimal movement last week. Romania experienced a slight downward shift of the yield curve. The government borrowed over RON 1bn in a 10-year benchmark auction at 7.16% - the lowest yield since November. In Hungary, only the 5-year segment of the HGB yield curve saw a notable increase. The Hungarian government has begun unveiling pre-election spending plans, including food vouchers for vulnerable groups such as pensioners and housing subsidies for public sector employees. The auction calendar is relatively empty this week. Fitch Ratings is scheduled to review Czechia’s sovereign rating (currently AA- with a stable outlook) after markets close on Friday.

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