Central banks in Romania and Serbia to cut rates

This week there are central bank meetings in Romania (Wednesday) and Serbia (Thursday). We expect both central banks to cut key interest rates by 25bp. In Romania, the new inflation projection will also be released after the central bank meeting. As for price developments, July’s inflation rate will be published in Hungary and producer prices will be released in Croatia and Serbia. Further, data on the development of retail and industry sectors in June will be released in several CEE countries (Hungary, Slovakia, Romania and Czechia). Finally, trade data for June will be released in Hungary, Czechia, Romania and Slovakia. Finally, on Friday Fitch is scheduled to revise Serbia’s rating.

FX market developments

The Czech koruna remained stable against the euro over the last week, while the Hungarian forint and the Polish zloty have gone in the other direction. The Hungarian forint’s losses were more extensive than the Polish zloty’s. The Czech National Bank reduced the key policy rate by 25bp to 4.5% and we see the key interest rate at 4.0% at the end of the year. According to the new central bank’s forecast, inflation is projected to hit 2.2% this year, tapering to 2.0% in the following year, while the GDP growth should attain 1.2% in 2024 and accelerate to 2.8% in 2025. This week, we have two central bank meetings scheduled. On Wednesday, the Romanian National Bank is expected to lower the key interest rate, and the following day the Serbian central bank should ease monetary conditions as well. Additionally, in Romania, the short-term inflation forecast should be revised downwards as a new inflation report will be published. As for other news in Serbia, the central bank’s governor has been confirmed to hold another mandate.

Bond market developments

Long-term interest rates have declined over the last week. The drop was quite substantial and reached as much as 50bp in Poland and Hungary and 20bp in Czechia, Romania and Romania. We link such development to Powell’s statement during the press conference, where there were clear indications for a rate cut in September. As for the bond auctions, Romania enjoyed strong demand for government papers, as supply substantially exceeded the plans. This week Romania will place 2028 Bonds on Monday and 2034 Bonds on Thursday. Poland also successfully placed the range of bonds and plans to be active on the bond market this week.

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