Will Croatia see a rating upgrade?

This week is all about inflation numbers in the region, Serbia’s central bank meeting and Croatia’s rating evaluation by S&P. As for inflation releases, Hungary, Czechia, Romania and Serbia will be particularly in focus. In all three countries we expect inflation easing in August compared to July’s. In Slovakia, local estimate will be published at the end of the week, but HICP flash estimate suggest an increase of inflation headline number in August. Central bank meeting in Serbia should result in interest rate cut to 5.75%. Other than that, we will see performance of the industry in July in Slovakia, Slovenia and Romania. Romania will also publish trade and current account balances, while Slovakia and Slovenia are scheduled to publish wage growth. Finally, on Friday after market closes S&P will release rating decision for Croatia that currently is at BBB+ with positive outlook. We see quite a possibility that Croatia will see a rating upgrade. 

FX market developments

When we look at the week-to-week balance the FX market was quite stable. The US data on employment missed the estimates that supported the FX market in the region and all three currencies that is the Czech koruna, the Hungarian forint and the Polish zloty strengthened against the euro. In Hungary, if information on moving away from fiscal consolidation is confirmed, the currency may suffer in the longer horizon. This week, Serbia hold a rate setting meeting and we expect a 25 basis points interest rate cut to 5.75% as inflation should fall toward the tolerance band in August. The Serbia’s central bank decision will come shortly before the ECB announcement on the interest rate that is scheduled on Thursday afternoon. It is expected that the ECB will almost certainly make its next interest rate cut of 25 basis points in September.

Bond market developments

In anticipation of monetary easing on both sides of the Atlantic, government bond yields collapsed further last week. The 10Y US Treasury yield and 10Y German bund yield fell 20bp and 10bp w/w, respectively. Among CEE markets, the largest downward move of yields was recorded in Poland (-30bp w/w), supported by comments from several MPC members who expressed their opinion that monetary easing could be debated and potentially start in mid-2025 in Poland, thus earlier than previously communicated. This week, Romania will reopen ROMGBs 2028, 2034, while Poland and Hungary will also offer a variety of bonds. Czechia, Slovenia and Hungary will be selling T-bills.

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