CEE: Diminishing appetite for monetary easing

This week, regular monthly data will dominate the release calendar in CEE. Poland will be the first to release industrial output and wage growth data for February. The February Producer Price Index (PPI) will be published in Czechia, Poland, and Slovenia, potentially providing more insights into the underlying forces behind inflation development. Croatia and Slovakia will release unemployment rates for February, and several countries will publish foreign trade and current account statistics for January. On Friday, the Czech National Bank (CNB) will publish minutes from the last MPC meeting. Global factors to watch include tariffs, FOMC meeting, ongoing cease-fire discussions, and amendments to the German debt brake rule. After the market closes on Friday, Moody’s is scheduled to review Poland’s rating, with no changes in rating or outlook expected.

FX market developments

The appetite for monetary easing in the region has been diminishing. The Serbian central bank kept the key rate steady at 5.75% at its last MPC meeting, extending the period of rate stability for half a year. We still expect the NBS to ease its policy stance by year-end, although we see rising risks for fewer cuts than previously envisaged. The National Bank of Poland also decided to leave rates unchanged last week. Although NBP Governor Glapinski mentioned that the MPC was analyzing the possibility of interest rate cuts in March, he stated that there were currently no reasons for such action. He highlighted inflation risks and presented a rather pessimistic inflation path, while confirming that decisions will be based on incoming data. The new governor of the Hungarian central bank, Mr. Varga, made very hawkish comments in his first official press conference, reacting to unpleasant surprises in February inflation. We have revised our forecast for this year’s average inflation upward to 5.5% from the previous 5%.

Bond market developments

Uncertainty over the impact of tariffs on the US economy, with potentially more harmful effects on growth, led to the strengthening of bonds in major markets. However, Hungarian bonds continued to slide as surging inflation and hawkish statements from the new governor sent Hungarian 10-year yields above 7%, a one-year high. Forward Rate Agreements suggest that markets have been pricing out chances for monetary easing this year. Romanian bonds somewhat benefited from the Constitutional Court's decision not to allow Mr. Georgescu to run for president in repeated presidential elections. Last week, Poland’s BGK tapped international markets, borrowing EUR 2.25bn in a dual-tranche Eurobond issue (5-year and 12-year). This week, the Slovak debt agency ARDAL will re-open four bonds (SLOVGBs 2033, 2034, 2035, and 2051) to borrow EUR 500mn. Romania will re-open ROMGBs 2028, 2031 and 2040, and Czechia will re-open CZGBs 2043. Hungary and Poland will conduct their regular bond auctions, while Hungary will also sell T-bills.

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