Croatia’s GDP, central bank in Hungary

This week, the Hungarian central bank holds a rate-setting meeting, and we expect no change in the policy rate. The inflation rate in January increased and, in combination with the EURHUF being above 400, leaves little space for monetary easing at this or upcoming meetings. Further, Croatia will publish 4Q24 GDP data together with the structure. Croatia is the only country that has not yet released its economic performance for 2024. In Czechia, Poland and Serbia, we already know the flash 4Q24 GDP estimates, and this week we get to know the structure of the growth. Apart from GDP data, Serbia will publish industrial output and retail sales growth in January. Poland and Slovenia are also scheduled to release retail sector performance at the beginning of the year. Further, Slovenia will release a flash estimate of February’s inflation. As far as price development is concerned, producer prices will be released in several CEE countries. Finally, labor market data is due in Hungary and Poland (unemployment rate) as well as in Serbia (wage growth).

FX market developments

CEE currencies have been holding relatively strong throughout the week and only on Friday did the EURHUF and EURPLN move up more visibly. The EURHUF touched 404 while at the beginning of the week, it was as low as 401. Global factors have been playing a role in the Hungarian forint and the Polish zloty, especially (news regarding a peace deal in Ukraine, Fed minutes and interest rate outlook in the US). Local factors are of importance as well, however. Especially as monetary easing gets delayed and the interest rate differential favors stronger forint and zloty.

This week, the Hungarian central bank holds a rate-setting meeting, and we expect the key interest rate to remain unchanged at 6.5%. Increased inflation and the weakness of the currency may hold off interest rate cuts for longer and the probability that the Hungarian central bank will remain on hold throughout 2025 has been increasing lately. In fact, Hungarian central banker Pleschinger made an

explicit comment that there is no room for rate cuts this year. As far as the communication of other central banks is concerned, Polish MPC member Kotecki said that monetary easing should begin in Poland in September at the latest.

Bond market developments

The reaction of CEE bond markets to the harsh comments directed at European countries by US representatives during the Munich Security Conference was relatively muted. It appears that the EU will loosen its fiscal criteria to allow member countries to significantly increase their military spending. However, it remains to be seen whether the EU will go further and create a new central facility to also provide financing through common issuance or repackage existing programs (such as unused RRF grants and loans) to redirect them towards military spending. Last week, Slovakia tapped the international market with a 15-year syndicated bond, borrowing EUR 3bn at a spread of 130bp above the mid-swap rate. This week, Romania will reopen ROMGBs maturing in 2026, 2031, and 2035. Additionally, Czechia, Poland, and Hungary will offer various bonds, while Croatia and Hungary will sell T-bills.

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