This week, the spotlight is on central bank meetings across Central and Eastern Europe (CEE), with significant decisions expected concerning interest rates. Expectations indicate stability of rates from the Polish central bank, but a potential cut is anticipated from Czechia as inflation data emerges from several countries, including the Czech Republic, Croatia, and Slovenia.
The Czech Republic is set to release its first flash inflation estimate, providing insight just before its central bank's decision. Inflation is expected to hover around the target level, and forecasts suggest January performance will remain consistent with economic goals. Meanwhile, data on the retail sector for December is due to be published from Hungary, Romania, and Slovakia.
Recent numbers from Hungary show optimism as the flash estimate for the fourth quarter of 2024 indicates solid retail sales growth. This complements reports from Romania and Slovakia, where final readings for the last quarter are anticipated soon. The growth of industrial output will also be published from Czechia, Hungary, and Slovakia, adding to the broader economic picture.
The foreign exchange (FX) market has demonstrated stability recently, with CEE currencies remaining resilient against the euro. Notably, the EURHUF dropped to 408, and the EURPLN briefly fell to 4.20, marking significant movements. Conversely, the EURCZK took the opposite direction, increasing to 25.13. A favorable global risk assessment supports local currencies, particularly the Hungarian forint and Polish zloty.
Looking forward, the central bank meeting in Czechia this week may introduce some volatility for the Czech koruna. Current commentary from central bankers, including Governor Michl, suggests interest rates could decline to 3.75%. Meanwhile, Poland appears to be on hold, with interest rate cuts seemingly delayed until at least July 2025.
The bond market also reflects these growing trends, with CEE government bonds experiencing gains last week as yields fell on major markets. Romanian government bonds (ROMGBs) stood out, seeing 10-year yields drop almost 50 basis points week-on-week from previous elevated levels. Romania's Ministry of Finance has reported strong demand during domestic issuance auctions, leading to notable bid-cover ratios above two for recent 6-year, 8-year, and 10-year bonds.
"The Ministry of Finance borrowed RON 2.8 billion, with RON 1.57 billion of it coming from 2-year bonds, marking the fourth-largest volume borrowed over the past year," as stated by economic analysts. This week's focus will continue with regular bond auctions scheduled for Poland and Hungary, alongside Treasury bill offerings exclusively within Hungary.
On the global front, predictions surrounding the Federal Reserve's future course shed light on wider monetary policy trends. Former St. Louis Fed President James Bullard indicated inflation is expected to decelerate significantly this year, allowing the central bank to continue reducing interest rates. Bullard remarked during his interview with MarketWatch, "March is too soon for a reduction though," dismissing immediate rate cuts.
He forecasts the core personal consumption expenditure index, favored by the Fed, to slide to a 2.3% annual rate by the end of 2025, compared to 2.8% at the close of the previous year. With these developments, market observers are closely monitoring both local and international economic indicators to gauge the health of the CEE region and the U.S. economy.
Such insights and statistics will inform the decisions made by central banks, aiming toward stable economic recovery amid inflationary pressures and varying global economic conditions. Investors and analysts alike are particularly attentive to the trajectories of various CEE currencies and nearby markets as these central bank meetings approach.