CEE Weekly Outlook: Romania's Rates Unchanged, Inflation Data Ahead

CEE: No change in rates or tone in Romania

Another busy week in the CEE region. Today, the Czech Republic's industrial production, foreign trade, and construction numbers will be released. Industry is showing signs of recovery. However, the only growing sector is automotive. Later today, we will see a decision from the National Bank of Romania. A rate change is not on the table, however, a new forecast will be published and we would like to hear some comments on the current inflation and leu developments. Inflation and budget numbers will be released tomorrow in Hungary. We expect a massive drop in July inflation from 20.1% to 17.3% YoY. The central bank expects 17.5% and the market 17.7% YoY. We don't expect much change from June for the state budget, which would be good news for Hungarian bonds. Then on Thursday, the Czech Republic's July inflation will be released. We expect a further decline from 9.7% to 8.7% YoY, in line with the market. The Czech National Bank expects 8.9% here.

In the FX market, we have seen high volatility and weakness in the region driven mainly by the US dollar and we do not expect much change this week. EUR/CZK has moved to 24.25 after the CNB intervention regime ended and the market does not seem to want to test higher levels for now. However, we think Thursday's inflation release has the potential to surprise to the downside, which should raise the bets for a central bank rate cut, and the market may test weaker CZK levels again. In the meantime, we expect a rather stable CZK of around 24.25 EUR /CZK.

The Hungarian forint finally rebounded and erased some losses on Friday. However, the main driver still seems to be the US dollar, which cannot offer much positive for EM FX this week either. So maybe we can see some recovery in the forint today, but a strong USD and a big jump in inflation down for HUF is not a positive factor.