Romanian and Polish central banks’ meetings

This week, Romanian and Polish central banks hold rate-setting meetings. We do not expect any change in the interest rate. In Poland, however, new inflation and growth projections will be published, and they may become another important factor in setting expectations for upcoming monetary easing. Further, we will see data on the retail sector in Hungary, Slovakia and Romania for May and industrial output growth in Hungary and Czechia. Finally, trade balance data will be published in Hungary, Slovenia, Romania, Czechia and Slovakia throughout the week.

FX market developments

CEE currencies have weakened against the euro throughout the week with the exception of the Polish zloty that at the end managed to turn that trend. There were no major local events scheduled and we thus associate the FX market development with global news. In particular, we have heard a series of quite hawkish statements from policy-makers from major central banks. Federal Reserve Chair Powell said that monetary policy may not be restrictive for long enough. Other central bankers had comments in a similar tone, saying that further moves are likely. This week, there are two central bank meetings in the region. Neither Romania nor Poland is expected to increase interest rates at the upcoming meetings. In Poland, new inflation and growth projections will be published. They may become additional arguments for setting expectations for monetary easing to begin this year, especially if a dynamic decline of inflation will be projected.

Bond market developments

CEE bond markets followed the major markets in their upward movement of yields last week, with two outliers. In Poland, yields have not increased, as more dovish comments from central bank representatives, as well as the flash estimate of June inflation published on Friday, have increased the probability of the first rate cut being delivered in autumn. In Hungary, yields even declined, especially on the short end of the HGB yield curve, supported by recently approved regulation which incentivizes (or forces) domestic financial institutions to buy more government securities. In Romania, YTD data on the budget deficit pointed to an increased risk of fiscal slippage (under a no policy-change scenario). Yields on ROMGBs increased more visibly last week, as the MinFin was accepting almost all bids in government bond auctions and signaled that it may increase issuance on the local market (RON 4bn of borrowing was announced for July). This week, Romania plans to reopen ROMGBs 2027 and 2030, while Hungary is going to issue T-bills.

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