Central banks’ meetings and flash inflation

This week, the rate-setting meetings of two central banks and the preliminary inflation data for September from a few CEE countries, along with PMI indices, will be in focus. While Poland’s central bank is expected to keep rates unchanged, the press conference on Thursday may provide more insights into the possible timing of a rate cut. Recently, there have been increasing voices from MPC members suggesting that the NBP may resume its monetary easing as early as March 2025. On Thursday, the Romanian central bank is likely to deliver another 25bp cut. Underwhelming economic growth in the first half of 2024 strongly supports further rate reductions. The monetary easing from the Fed and ECB, along with dovish stances from other regional central banks, also supports this view. Preliminary inflation data for September from Croatia, Poland, and Slovenia are likely to show higher readings. The highest inflation increase, from 4.3% to 4.8%, is expected in Poland, where the annual price dynamics will be significantly affected by the base effect from a year ago when food and energy prices dropped sharply. In Slovenia, despite an expected price increase, inflation should remain the lowest in CEE, at close to 1%. It will be interesting to watch September’s PMIs, as preliminary readings for Germany indicate that a recovery of the German manufacturing sector is still not in sight. On Friday, after the market closes, S&P is scheduled to review Serbia’s sovereign rating. We expect the rating agency to reaffirm the current rating (BB+ with a positive outlook) and upgrade Serbia to investment grade next year.

FX market developments

CEE currencies depreciated last week against the euro, with the Hungarian forint losing almost 1% w/w as the central bank resumed its monetary easing. This week, the Romanian central bank is expected to be next in CEE to cut interest rates, while Poland’s central bank should keep rates on hold. In Romania, the bank board will meet for the last time before the formal reappointment of the MPC board (including the governor) by the parliament. While the market consensus is not so firm on the delivery of a rate cut at this week’s meeting, we believe that a weaker growth outlook and a lower interest rate environment on global markets and among peer countries support the rate cut.

Bond market developments

Government bond yields in both major markets and CEE edged down last week, most notably in Hungary, supported by another rate cut. This week, Slovenia opted to reopen its ten-year euro bond issue by placing an additional EUR 750mn, bringing the total size of its Mar-2034 tenor to EUR 2.75bn. Demand was strong, with the book size exceeding EUR 3bn, allowing the final pricing to be set at 2.946%, i.e., MS+56bp (vs. initial guidance at MS+62bp). With this issuance, Slovenia has closed around 80% of this year’s funding needs, suggesting a comfortable financing position ahead. The Romanian Ministry of Finance announced a multi-tranche issuance of Samurai bonds. Green bonds denominated in JPY have been offered in six different tenors ranging between 3Y and 20Y, with order books expected to close this week. In local markets, Romania will reopen ROMGB 2038, while Hungary and Czechia will offer T-bills along with various bonds.

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