This week’s focus is on central bank meetings and inflation prints in the CEE region. After yesterday’s inflation numbers in Turkey, the Czech Republic follows today. We expect a drop from 2.7% to 2.2%, one-tenth above market expectations. This print will get extra market attention as the Czech National Bank will decide tomorrow. We expect a 25bp rate cut to 3.50% but believe a pause is also on the table, and any upside surprise in inflation would tip the board’s decision-making in favour of another pause. In either case, though, we will also be watching the new forecast and forward guidance given the strong dovish market expectations.
Wednesday will also see a decision from the National Bank of Poland, which is likely to resume its cutting cycle after a year and a half. We expect 50bp in line with market expectations. Thursday, as usual, will be followed by the NBP governor’s press conference, which should set the central bank’s future direction. On Friday, Hungary will release its April inflation reading, which is likely to fall below 4% YoY, this year’s low.
Politically, in Romania, during the first round of the presidential election, a pro-government candidate did not make it to the second round, which led to the resignation of the prime minister yesterday. The second round will take place in two weeks, however markets reacted yesterday with a strong sell-off in Romanian government bonds, and we are likely to see the full effect of the election today given the closed London market yesterday.
Although the global story sees rapid swings, the CEE FX picture and our views remain relatively stable. We have been building a case for lower PLN/CZK for the last month. Although the pair has moved significantly in recent weeks, this week should be an additional catalyst. We expect CNB to be hawkish versus market pricing in both scenarios, which should support further CZK gains below 24.900. On the other side, the NBP opening of the cutting cycle should pressure a weaker PLN, underperforming CEE peers. We expect EUR/PLN to range 4.280-300 this week with the upper range testing if NBP confirms its dovish stance.
Frantisek Taborsky
