May’s inflation footprints flowing in

This week, May’s inflation numbers will be flowing in throughout the week. We have already seen the flash estimates in Poland and Slovenia (inflation dropped to 13.0% y/y and 8.4% y/y, respectively), while in Hungary, headline inflation in May eased to 21.5% y/y. We expect to see the easing trend across the region this week, as Czechia and Serbia will publish inflation on Monday, Romania on Tuesday, Slovakia on Wednesday. Details on inflation drivers in Poland will be released on Thursday, while Croatia will see the local inflation footprint on Friday, which should come in line with the initial estimate published at the beginning of the year within the Eurozone. As for other price developments in the region Czechia and Croatia will also release producer price growth in May. Other economic releases will include industrial output growth in April in Romania, alongside wage growth in Romania and Slovakia, the current account balance in Romania and trade balance in Poland.

FX market developments

In general, all CEE currencies have been holding strong against the euro throughout the last week. Apart from the Czech koruna, which weakened marginally, the Hungarian forint, Polish zloty and Romanian leu gained. In Romania, the interest of international investors in long-term bonds has likely supported the strengthening bias. The biggest appreciation trend was visible in Poland, with the EURPLN moving down to 4.44. The Polish central bank kept the policy rate unchanged at 6.75%, but the dovish tone is becoming more and more profound, with Governor Glapinski formulating conditions for the rate cut toward the end of the year, inflation below 10% and on a clear downward trend. Monetary easing has become increasingly likely. In Serbia, on the other hand, the central bank surprised with an interest rate hike to 6.25% at the last meeting. This week, inflation releases will be the most important data from the monetary policy point of view.

Bond market developments

Over the last week, long-term yields kept declining across the region, with Hungarian 10Y yields moving down by as much as 50 basis points, while the drops of 10Y yields in other countries were less pronounced. Croatia tapped the bond market, selling EUR 1.5bn of treasury papers maturing in 2035. The final supply was a bit higher than the plan of EUR 1.25bn. The demand was strong, with a book size in excess of EUR 7bn. The final pricing was set at MS+105, translating into yield-to-maturity just above 4%. This auction brought the issuance just above 70% of the 2023 target, with one big ticket still expected in 4Q23 on the local market. Romania also saw strong demand at the bond auction offering government papers maturing in 2038, with offshore investors interested in long-end term yields. This week, Romania will offer 2027 and 2032 bonds. Czechia and Poland also plan bond auctions, while Slovenia and Hungary will release T-bills.

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