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2019/11/04 / Erste Group Research

CEE central banks to remain on hold

It is going to be quite an eventful week, with four central bank decisions at the center of attention. After interest rate cut in the US and the Fed announcing a pause, we expect CEE central banks to remain on hold as well. The most interesting meeting will be in Serbia, as the call is likely to be close. We lean towards a stability of rates scenario, due to the elevated external uncertainty, but acknowledge that the visible undershooting of inflation could lead to a rate cut down the road. In Czechia, on the other hand, the discussion on “stability vs. tightening” is approaching. The Polish MPC will get to see a new inflation projection, with a likely downward revision of this year's growth and the inflation forecast strongly depending on the assumption on energy prices. In Romania, there is a broad consensus that the central bank will leave the policy rate flat. Apart from that, we expect to see solid retail and industry data for September across the region that will complete the picture of the economic performance in the third quarter.

Last week the EURHUF moved down the most and dropped below 330, but it is back at 328 on Monday. The Czech koruna has gotten close to our year-end forecast at 25.50, while the Polish zloty touched 4.25 vs. the EUR. We see global factors behind the recent development (Brexit solution on the horizon, the Fed cutting the interest rate, US-China trade deal). The Serbian central bank was also active on the FX market, intervening last week in response to rising appreciation pressure on the dinar. While the EURCZK is expected to stay in a tight band, the Hungarian forint should depreciate, as the central bank keeps increasing the FX swaps.

Over the course of the week, the German long end of the curve went down by 5bp, following an even bigger move on US long-term rates. As the 10Y yields on local currency bonds in the region were mostly untouched, the spread vs. Bunds has widened. The only exception was Serbia, where 9Y yields dropped by 17bp. On the Eurobond market, we have seen widening of the spreads. This week, decisions by local central banks should be neutral for the bond market. Any changes are likely to be driven by global sentiment.

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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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