Inflation takes center stage


This week will be busy as we wait for a flood of data and a central bank meeting. The Serbian central bank will likely stay on hold and keep its key rate at 1% on Thursday. Inflation figures for July will be released for most of the region. Hungary’s CPI is likely to have declined to 4.7% year-on-year, reflecting the higher base from last July. Czech consumer prices are expected to rise 2.8% year-on-year as inflation remains high, mainly due to strong domestic demand and a tight labor market. Serbian inflation may have remained in the middle part of the SNB’s 3% year-on-year target range and a similar pace can be expected in Slovakia, where tobacco and imputed rents remain important contributors. Romanian inflation is likely to accelerate to 4.8% year-on-year, reflecting expected increases in electricity and gas prices. The Polish impression of the CPI should be confirmed at 5% y / y. More interesting news from Poland will come regarding the GDP flash release. Strong real economy data and the base effect likely pushed 2Q21 GDP growth to around 10.7% yoy (2.3% q / q), while net exports likely remained low. brake on growth. In addition, industrial production figures for June will be released for Slovenia, Romania and Slovakia. We can expect robust double-digit industry growth of around 10%, still affected by the base effect (albeit less than before), but also by concerns and bottlenecks in the industry. supply side. The June trade balance will be released in Romania, Slovakia, Slovenia and Poland. On Friday, the S&P will revise the Hungarian rating – no outlook or rating change expected.

Evolution of the foreign exchange market

EEC currencies benefited from higher interest rate expectations in the EEC. The Hungarian forint continued to outperform its regional peers with the fastest rate of tightening in the pipeline. A new pledge by the CNB to hike rates in the coming months also helped the Czech Koruna late last week. Due to the uncertainty surrounding the pandemic, we don’t know if a 25bp hike will be achieved with each subsequent policy meeting, but if so, and if the pandemic risks abate, the crown can easily fall apart. strengthen below 25 EURCZK. We plan to publish our new macroeconomic and market forecasts for the Czech Republic in early September. The Croatian kuna has also appreciated slightly over the past week, which can be attributed to the typical seasonal pattern. The depreciation pressure on the Romanian leu has also eased; the leu fell below 4.92 EURRON last week, supported by agricultural exports as well as tight central bank liquidity management.

Evolution of the bond market

Yields on 10-year government bonds remained stable or even declined slightly last week in the EEC, with the exception of Poland and Romania. In Romania, the yield curve steepened, due to the underweighting of ROMGB duration by local investors ahead of the publication of the new BNR inflation forecast and July inflation. which should indicate a higher inflation path. Despite the NBP’s very strong resistance to monetary tightening, the POLGB curve has shifted upwards by around 8bp w / w, as pressure from rising inflation increases, all the more that it is taken seriously by comparable central banks. The more aggressive rate of tightening announced by the CNB did little to damage the CZGBs; the curve flattened, as short-term bond rates (ie 1 year) rose. At the end of the week, S&P is expected to publish its sovereign rating on Hungary.

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