CEE: Increasing Odds of Rate Cut in Poland as Inflation Concerns Ease

CEE: Rising chances for rate cut in Poland this year

Yesterday's press conference by the National Bank of Poland (NBP) governor delivered a dovish tone. The governor mentioned during the press conference that inflation could fall below 10% year-on-year in September, which is likely the main condition for a rate cut.

 

We expect this condition to be met by that time, which could open the door for monetary policy easing. Our economists see the chances of a post-summer rate cut increasing from 30-40% to 50% after this central bank meeting. However, this move is roughly priced into the rates market.

 

May inflation in Hungary will be released today. We expect a fall from 24.0% to 22.1% YoY, slightly below market expectations, mainly on easing price pressures in food, fuel, and durables. Services inflation, however, will remain strong, thus core inflation on a monthly basis will stay high around 0.8%. And later today, we will see the May state budget result in Hungary, which like the rest of the region, is underwater, raising questions about meeting the target this year.

 

In the FX market today, rather than a local story, we will see a follow-up of yesterday's movement in core rates, which translated into lower interest rate differentials across the region, indicating weaker FX in Central and Eastern Europe.