It will be a pretty busy week in the region. Today we will look at the September PMIs, which should once again confirm the mixed and complicated industrial outlook in the CEE countries. Later today the result of the Czech Republic’s state budget will be known, which is the only one in the region that has positively surprised in recent months. On Wednesday we will have data on retail sales in Hungary and Romania.
However, the main event will be the meeting of the National Bank of Poland, which will decide on interest rates for the first time since the surprise 75 basis point cut in early September. We expect another rate cut, but this time only by 25 basis points, mainly due to the risk of further depreciation of the Polish zloty. Thursday’s meeting of the National Bank of Romania will follow, but here we will have to wait until the beginning of next year for the first rate cut. On Friday we will know data on industrial production in Hungary and retail sales in the Czech Republic, and the Czech National Bank will publish the minutes of its last meeting.
In the foreign exchange market, the picture has practically not changed since last week. Globally, the strength of the US dollar remains the main concern for ECO, which may cause even more damage to emerging market currencies if underlying rates continue to rise this week. Market rates and interest rate differentials have become the main factor in recent weeks, so core markets will be the main focus. In Poland, of course, the central bank’s actions and communication this week will be crucial, but given the dovish market expectations and short positioning, a smaller rate cut could add some support to the Polish zloty. However, uncertainty over the future of monetary policy and the upcoming general election is unlikely to allow for a larger rally, so greater volatility is more likely to be expected around current levels.
In Hungary, the market’s review of expectations for rate cuts in the rest of the year continues, which has been positive for the increase in the interest rate differential and the stabilization of the forint. Furthermore, higher rates indicate that we could see a continuation of the current trend below 388 EUR/HUF.