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2019/09/09 / Erste Group Research

CEE Market Insights

The ECB decision will undoubtedly be a major factor for CEE FXFI markets this week, while developments around Brexit could also complicate the picture. Although we expect that a 10bp cut in the deposit rate will be delivered and monthly purchases of EUR 40bn worth of bonds could come from the ECB, markets are likely expecting somewhat more radical moves and thus there is a risk for a hawkish surprise. In this case, the US dollar may fall against the euro, which is usually positive for CEE currencies, but could also increase market uncertainty in general. In this case, however, government bond yields will likely not be able to avoid an increase.

This time, it was an improvement in the global market mood that caused CEE yields to increase and this also brought temporary relief to CEE currencies. The fact that spreads over German Bunds also grew is likely due to the fact that investors started eyeing stocks and should not have anything to do with local fundamentals. Croatian bonds continued to avoid the trend and delivered further yield declines. As we have noted, we cut our Croatian 10Y yield forecast due to this resilience. In Serbia, while the central bank again had to resort to interventions on the market to keep the RSD from appreciating, we do not think that a rate cut could come this week.

Week Ahead: This week, inflation rate and industrial output data will be in focus in CEE, as well as MPC meetings in Poland and Serbia. In the Czech Republic, Hungary and Romania, we expect headline CPI to ease marginally in August, as was the case in Poland, where we await confirmation of the flash reading. In Serbia, the inflation rate should remain stable, close to the lower bound of the inflation target. Given the limited inflationary pressure, the Serbian central bank is likely to keep the policy rate unchanged at 2.5% after delivering two cuts. Stability of rates is also the baseline scenario in Poland. Even if the MPC gets to discuss rate hike motions, as was the case at the last meeting, we believe that a majority to pass such a motion is unlikely to form. Industrial production output in July recovered in the Czech Republic, Croatia, Hungary and Poland so far. This week, we will see the industry figure for Slovenia, which is expected to grow, albeit at a slower pace compared to the previous month, while in Romania a further contraction is the most likely scenario.

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General information

AuthorErste Group Research
Product nameCEE Insights
Topic in focusFX, Macro/ Fixed income
Economy in focusCEE, Croatia, Czech Republic, Hungary, Poland, Romania, Serbia, Slovakia, Slovenia
Currency in focusCroatian Kuna, Czech Koruna, Euro, Hungarian Forint, Polish Zloty, Romanian Leu, Serbian dinar
Sector in focus-


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