CEE Market Insights
Week Ahead: After the ECB and FOMC meetings, we move to local central bank decisions. On Tuesday, the Hungarian National Bank holds its rate setting meeting and we expect it to keep the policy rate unchanged and reiterate its dovish rhetoric. In particular, the new inflation report is likely to show a downward revision of the core inflation forecast. At the top, tradable inflation has slowed down visibly. The next day, the Czech National Bank is going to decide on the policy rate. The CNB seems reluctant to join the “dovish club”, however, as board member Holub said that the debate would be either to keep or raise interest rates. Monetary easing is out of the discussion scope at this point. On Thursday, we will get to see the minutes from the Polish MPC meeting. We expect to read arguments supporting the stability of rates (dovish major central bank, expected slowdown), despite rising inflation. In a week, after market close, we may see Fitch changing Serbia’s outlook to positive.
Currencies fell last week in the region, but the stronger the yield declines of bond markets, the more robust the weakening in the currency that took place. We saw that regional markets reacted not much to international market developments (Saudi oil attacks, Fed decision). The koruna is still rather weak, despite central banker comments on rate stability or even a rate hike, while global rate developments continue to remain muted. We therefore put our koruna forecast under review, likely envisaging a much less pronounced appreciation for the CZK in the coming months than our current, official number penciled in.
Yield developments mostly followed that of the German Bund or even declined more (i.e. in Hungary and Poland). The Czech 10Y yield stayed flat, which could be underpinned by relatively hawkish comments from ratesetter Holub last week. In Romania, yields on longer-dated bonds went up more, amid three consecutive rejections of all bids at bond auctions by the MinFin recently, as demand was low. The political deadlock, combined with the ultragenerous pension hike promise next year, are not supportive for Romanian bonds.