Regional central banks to stay on hold

Erste Bank Research Team Erste Bank

Three central banks are meeting this week, in Poland, Romania and Serbia, and we do not expect any changes in the policy rate in any of them. There are some risks of another interest rate cut in Poland as inflation declines; on the other hand, new inflation and growth projections may send the signal to hold off with monetary easing. October inflation rates will be published for Czechia and Hungary. While disinflation should continue in Hungary, for Czechia, we expect headline inflation to rise, due to a base effect (Saving Tariff introduced a year ago). Apart from that, September data on retail and the industrial sector will be released. Industrial output growth will be published in Czechia, Hungary, Slovenia and Slovakia throughout the week, while on Wednesday, Hungary, Romania and Slovakia will report retail sales growth. These releases will come shortly before the flash 3Q23 data. Other than that, Croatia and Serbia will publish PPI, Romania and Slovakia trade data.

FX market developments

The CEE currencies gained against the euro throughout the week. The EURCZK moved more visibly down after the Czech National Bank's decision to keep the policy rate unchanged at 7.0% at the last meeting. Global developments, in particular the FOMC keeping the benchmark rate stable in the US, also supported the currencies in the region. This week, there are three central bank meetings scheduled. The Polish and Romanian national banks will decide on interest rates on Wednesday, the Serbian central bank on Thursday. We incline towards a stability of rates scenario for all of them. In Poland, however, the market expects another 25 basis point cut. On one hand, inflation declined visibly in October to 6.5%; on the other hand, new inflation and growth projections may provide the impetus for MPC members to hold off with further monetary easing. Recent interest rate cuts may slow the pace of the inflation rate coming back to the target and the recent increase in the oil price is a source of upside risks.

Bond market developments

CEE bond markets reacted positively to the FOMC’s decision to leave its benchmark rate unchanged, followed by relatively dovish comments from the FED chairman. 10Y LCY government bond yields dropped 10-40bp w/w in CEE, with the largest decline observed in 10Y HGBs. Relief on major bond markets is especially supportive of further monetary easing in Hungary, which can be clearly seen in falling FRAs. Demand in auctions of government bonds was also affected by events from overseas. While the Romanian MinFin raised only RON 303mn vs. RON 400mn planned in the auction of ROMGBs 2036, in the aftermath of the FED comments, the MinFin enjoyed strong demand in the auction of 5Y ROMGBs and borrowed RON 1.6bn vs. RON 700m planned. Romania's MinFin also updated its issuance plan, according to which it seeks to borrow RON 5bn in November. T-bills worth RON 500mn will be offered already this week together with ROMGBs 2031 and 2033, both with targeted volumes of RON 600mn each. Hungary and Czechia will offer a combination of T-bills and T-bonds.

Download The Full CEE Insights

Author

Erste Bank Research Team

Erste Bank

At Erste Group we greatly value transparency. Our Investor Relations team strives to provide comprehensive information with frequent updates to ensure that the details on these pages are always current.

AUD/USD reclaims 0.7100 and above

AUD/USD regains the smile, reversing three consecutive daily pullbacks and returning to the area beyond 0.7100 the figure following the Wall St close on Thursday. That said, the softer tone in the US Dollar lends support to the pair’s recovery at the time when market participants continue to digest Wednesday’s hawkish message by the Fed.

USD/JPY looks slightly offered near 156.00 ahead of BoJ

USD/JPY trades with decent losses in the 156.00 region ahead of the opening bell in Asia. Indeed, the pair has faded part of the recent three-day positive streak, faltering just ahead of the 156.50 level. Meanwhile, all the attention is expected to be on the BoJ early on Friday, with investors largely anticipating a 25-bps rate hike.

Gold: Upside appears capped by $4,400

Gold climbs sharply and clinches fresh weekly peaks on Thursday, although the bull run seems to have met some initial hurdle around the $4,400 zone per troy ounce. The yellow metal’s rebound reverses three daily declines in a row and follows the modest retracement in the US Dollar as well as another negative performance of crude oil prices.

Zcash Price Forecast: ZEC eyes $1,500 breakout as retail demand expands

Zcash (ZEC) rises sharply above $1,400 on Thursday as the privacy-focused token defies the broader cryptocurrency market's doldrums this week, driven primarily by macro uncertainty and regulatory headwinds. ZEC’s bullish outlook, though seemingly overextended, remains stable, supported by growing retail demand reflected in the derivatives market.

One hike down, more to come? The Fed’s new rate path says yes

The Federal Reserve (Fed) raised its Fed Fund Target Range (FFTR) range by 25 basis points to 3.75%-4.00% in a unanimous decision, saying the move would support a timelier return to its 2% inflation goal.

How Japan became the World's Banker and why that era may be ending

Japan's ultra-low interest rates helped finance trillions of dollars in global investments for more than a decade, making the Japanese Yen one of the world’s cheapest sources of funding. With the Bank of Japan expected to tighten policy again this week, that advantage may be entering a new phase. While most major economies raised interest rates, Japan remained the world's outlier.