CEE End-of-Week Report: Inflation Updates and Regional Dynamics

CEE: Busy end to the week

Today we have a busy end to the week in the CEE region. October inflation will be published in Hungary. We expect a further fall from 12.2% to 10.3% year-on-year, slightly below market expectations, while the central bank expects 10.5%. Inflation therefore has a high bar for hawkish surprises in our view, and the lower number should support further market bets on rate cuts. However, this week the HUF seems to have fully disconnected from rates and is not interested at all. We believe the relationship should resume sooner or later and lower rates will drive EUR/HUF higher. Moreover, the EU money story seems to come into play soon, which should bring more volatility and a weaker HUF – at least initially. On the other hand, we remain bullish on the HUF in the long term.

In the Czech Republic, we will also see the inflation print for October. We agree with the market expecting an increase from 6.9% to 8.4% YoY mainly due to the base effect from last year. The Czech National Bank (CNB) is expecting 8.3%. However, the survey range is quite wide and skewed towards higher numbers, which could encourage more paying flow in the rates space and support the CZK. On the other hand, we will also see the CNB minutes today, which we think could be more dovish than the press conference following the central bank's decision last week and could push EUR/CZK in the opposite direction. Looking ahead, however, we expect to see weaker economic numbers and hesitant statements from the CNB, which we think will boost rate cut bets and push EUR/CZK higher again.

In Poland, Fitch will publish a rating review after the close of trading. We do not expect any changes this time but it will be the first review after the elections and it will be interesting to see the assessment of the loose fiscal policy and the plan for a record sovereign bond issuance next year.