CEE Insights | Mixed inflation expectations and another rate cut in Serbia
Many important macro releases and events are scheduled this week. In Romania, the parliament will hold a no-confidence vote against the government on Thursday. We see a possibility that the motion will be passed, but the vote could easily go either way. After a somewhat softer inflation print for September in Poland, other CEE countries will publish CPI figures this week. In Hungary and Romania, we expect inflation to land marginally below recent figures, while in Serbia and Czechia it is expected to accelerate. The Serbian central bank is holding a rate-setting meeting. We suspect that the NBS may cut again. Amid low inflation, foreign flows intensified after the Fitch upgrade, putting pressure on the FX rate and restating the need for intervention. Last but not least, we will get to see industrial output growth in Czechia, Hungary, Slovakia and Slovenia.
Regional currencies advanced throughout the week, with the zloty and forint outperforming peers. The zloty appreciated more visibly after the ECJ ruling. Apart from global factors, the koruna was supported by slightly hawkish CNB communication. The Serbian central bank continues with the interventions (EUR 40mn on a daily basis). We suspect that the NBS will cut the policy rate again, as foreign flows intensified after Fitch upgraded Serbia's outlook, putting pressure on the FX rate.
The long end of the curve began to move down again following the drop in 10Y UST after the weak ISM manufacturing index hit the lowest level in a decade. In Hungary, the 10Y yield is already 15bp lower than a week ago, while in Poland long-term rates dropped 11bp. Other countries, apart from Romania, also experienced a 10Y rate decrease.