Stability of rates in Czechia and Hungary

Czechia and Hungary will be in the spotlight this week, as these two countries have central bank meetings scheduled. We do not expect any change in the policy rate in either of these two countries. In Hungary, new inflation and growth forecasts will be released as well, which may determine the path of monetary policy. Retail sales growth will be published in Poland, Slovenia and Croatia. After some disappointment regarding the performance of industry in Poland in February, it will be interesting to see whether retail sales growth surprises to the downside as well, or instead meets expectations. Finally, February’s unemployment rate will be published in Poland and Hungary and January’s real wage growth in Serbia. On Friday, after market close, S&P is scheduled to review the rating and outlook of Czechia. We do not expect any change. 

FX market developments

Volatility on the FX market has been rather low over the week. The weakening of the CEE currencies against the euro was rather marginal. In Hungary, the central bank meeting will be the first under the new leadership. We do not see space for a rate cut at the April meeting or in the near future. The inflation rate increased in February. More importantly, however, inflationary expectations are elevated, limiting the space for monetary easing. Although the EURHUF moved down visibly over the last month, the Hungarian forint remains vulnerable, and its stabilization will be in focus. Finally, new inflation and growth projections will be published in Hungary that may shed more light on monetary policy directions, including our expectations for the interest rate level at the end of the year. In Czechia, at the upcoming meeting, interest rates should remain stable. Recent comments from central bankers such as Seidler and Kubicek confirm there is a rather broad consensus regarding the outcome of the April meeting. Looking ahead, however, there is less unity regarding the terminal rate. While Seidler sees another 50-basis point cut as reasonable, Kubicek’s equilibrium rate is at 3.50% (meaning one more 25-basis point cut only). Other than that, global developments remain the key driver of the FX market.

Bond market developments

CEE bond markets have benefited from a drop in yields on the global market. The POLGB yield curve shifted down by 10bp w/w, while the downward movement on the CZGB and HGB curves was rather benign shortly before the central bank meetings, at which both central banks are expected to keep rates unchanged. The ROMGB yield curve has remained elevated following Moody’s decision to change the rating outlook to negative. All eyes in Romania are on the presidential elections, which will be pivotal for further political and fiscal developments, and thus impact the rating as well. This week, Romania will reopen ROMGBs 2026 and 2035. Czechia and Poland will be selling various T-bonds, and Czechia and Hungary will also offer T-bills.

Download The Full CEE Insights