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ING’s Frantisek Taborsky highlights a busy CEE data and policy calendar, with Hungary’s inflation seen edging up, the National Bank of Poland and Central Bank of Turkey expected on hold, and Romania’s inflation falling sharply on base effects. He argues markets overprice tightening in Czech Republic and Poland, seeing scope for narrower rate differentials and moderate CEE currency weakness, especially in EUR/CZK and EUR/PLN.
Rates repricing to weigh on CEE FX
“With the start of a new month, the CEE calendar is again packed with local events. Today brings July industrial production data from the Czech Republic and Hungary. Tomorrow, Hungary releases August inflation, which we expect to edge up from 1.2% to 1.4% after several months of disinflation.”
“On Wednesday, we expect the National Bank of Poland to keep rates unchanged at 3.75% and remain on hold for the rest of the year. Following the governor’s dovish remarks in July, inflation has risen over the past two months, effectively closing the door to a near-term rate move.”
“On Thursday, the Central Bank of Turkey is also likely to hold rates at 37%. We believe it will wait before resuming cuts after restarting repo auctions two weeks ago, which lowered the effective market rate. Finally, Romania’s August inflation is due on Friday. We expect it to fall sharply from 8.2% to 6.5% year-on-year, largely due to base effects, despite some acceleration in monthly price growth.”
“In the Czech Republic, the CNB blackout period starts on Thursday and we should see more headlines from the bank board in the coming days. We expect a more dovish tone versus aggressive hawkish market pricing.”
“Regional rates rallied last week after global relief, reducing expectations of rate hikes in the Czech Republic and Poland. Even so, markets still price around 80bp of tightening in both countries, which we view as excessive. A further unwinding of these bets should narrow interest-rate differentials and weigh moderately on CEE currencies.”
“We therefore see upside risks to EUR/CZK, which could move back above 24.250 unless the CNB delivers a hawkish surprise this week. EUR/PLN also appears to have reached a local low and could rise if the NBP maintains its dovish bias despite higher inflation.”
