Rate cut in Serbia and four rating decisions

This week will feature several important macroeconomic data releases and announcements. September inflation data will be published for Czechia, Hungary, Romania and Serbia. We expect annual inflation to ease in September compared to August by 0.1-0.5 percentage points in all countries except Czechia, mainly due to lower fuel prices and a favorable base effect in Romania. In Czechia, lower fuel prices will only slow down the inflation increase, driven by a low base from a year ago. Industrial production likely contracted in August in Czechia and Slovakia, while Slovenia might report a mild recovery. August retail sales should maintain strong dynamics in Romania (7.7% y/y), but are expected to grow significantly more slowly in Hungary and Slovakia (2.5-2.8% y/y), lagging behind the brisk real wage growth. On Thursday, Romania’s statistical office will publish revised GDP time-series since 2022. Any significant data revisions could impact our GDP forecasts, due to changes in dynamics or composition. We expect the National Bank of Serbia to lower its key rate by 25 basis points to 5.5% on Thursday. On Friday, after the market close, there will be a series of rating decisions. S&P is set to review the ratings of Czechia and Romania, and we do not expect any changes in either ratings or outlooks, which are currently stable. Slovenia’s rating will be assessed by Fitch and Moody’s. We expect both Fitch and Moody's to remain on hold i.e. affirm their ratings at 'A' and 'A3', respectively, with stable outlook.

FX market developments

The escalation of the military conflict in the Middle East negatively impacted CEE currencies last week. The Hungarian forint was hit the hardest, breaching the 400 EUR/HUF level and depreciating more than 1% w/w for the second consecutive week. The European Commission’s announcement that Hungary will be referred to the European Court of Justice for its ‘Defense of Sovereignty’ law, which is considered to breach EU law, did not help the forint. The last infringement procedure resulted in a EUR 200mn fine, which has been deducted from EU payments. Serbia’s central bank is expected to continue its monetary easing and deliver another 25 basis point rate cut, bringing the key rate to 5.5%.

Bond market developments

CEE government bonds have been relatively resilient against the global risk-off mode in Romania only. In other CEE countries long-term yields have increased. The US data showing drop of unemployment rate and acceleration of wage growth supported such development as well. 10-year yields went up in Czechia and in Poland by about 20 basis points w/w, while in Hungary by more than 30 basis points. In Hungary, markets have started to discount a number of rate cuts in the next few months, as suggested by a 40 basis point w/w increase in FRAs 6x9. Romania placed a multi-tranche Samurai bond issue worth JPY 33bn, through 3-year, 5-year and 7-year green bonds. The tranches with longer tenors from the initial offering have been dropped. On Thursday, the Slovak Debt Agency will hold a press conference to reveal more details about its first issue of retail bonds. We expect 3-5 year maturities to be offered, with a relatively modest volume targeted (i.e. up to EUR 400mn).

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