Pot of RRF money for CEE is still high

On the radar

• Hungarian central bank left the key policy rate unchanged at 6.50%.

• Retail sales in Slovenia declined by -3.1% y/y in December.

• Today, there are no releases scheduled in the region.

Economic developments

CEE countries have already received EUR 44 billion from the EU’s Recovery and Resilience Facility (RRF) through grants and loans, including pre-financing payments. EUR 10 billion is awaiting disbursement, and another EUR 63 billion could still be requested if milestones are met before the end of 2026. So far, Croatia has been the most disciplined in meeting its milestones, securing disbursement of 64% of allocated grants, and has already submitted a request for the 6th payment. Slovakia follows with the disbursement of 54% of available grants and has submitted a request for the 5th payment. Unlike other CEE countries, Slovakia has not requested any loans in its Recovery and Resilience Plan. RRF loans have become a strong backbone of Poland’s financing, with EUR 13.5 billion (39% of its envelope) already drawn and a request for another EUR 2.1 billion already submitted. Romania is still struggling to get the 3rd payment. Any material progress in meeting milestones and disbursement of these funds would definitely help Romania ease the pressure on financing costs. Hungary has not utilized the potential of the RRF grant and loan scheme as it has not met preconditions. Hungary has received only small volumes that were part of the pre-financing of the REPowerEU program and thus 90% of the envelope (equal to EUR 9.5bn) will be unused.

Market developments

Hungarian central bank kept the policy rate unchanged at 6.50%. In its communication, the monetary council preserved its cautious approach. More importantly, however, the forward guidance changed to a more hawkish direction. Instead of a “further pause in cutting interest rates,” the statement of the monetary council emphasized “the maintenance of tight monetary conditions.” Nevertheless, we would not rule out a chance for cautious rate reductions later in the year. The expected interest rate cuts of the ECB in the first half of the year may increase the room for maneuver later, and inflationary pressure should also slowly ease from the middle of the year. However, it would be important to have a more stable exchange rate and an improvement in risk perception before interest rate cuts are restated in Hungary. In Czechia, the governor Michl said that the 25 basis points interest rate cut is very likely at the upcoming Czech central bank meeting (due February 6). CEE currencies kept strengthening against the euro, while the long term yields have been lower ahead of the ECB meeting.

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