NBH Holds Steady Amid Weak Data; Market Eyes Dovish Hints

CEE: The market will test NBH's hawkishness

CEE: The market will test NBH's hawkishness

The market had already priced out all rate cuts before the summer began, leaving only one cut for the end of the year and three more next year. The central bank is likely to reaffirm its hawkish stance, so we shouldn't expect many new developments. Therefore, we do not see much potential for HUF support here. On the other hand, a surprise may be more likely on the dovish side should the NBH show some bias in that direction given the weaker economy. However, 399-400 EUR/HUF should remain in the days ahead given the absence of a stronger story during the summer in either direction.

Yesterday's industrial data in Poland once again surprised on the downside and activity here remains subdued. On the other hand, wages surprised to the upside. However, a deeper dive into the headline reading reveals that stronger wage dynamics were mainly due to additional payments in two sectors only. Even though some policymakers point to wage dynamics as an important factor for the monetary policy outlook, we do not think that the high June reading will prevent further rate cuts by the National Bank of Poland (NBP).

The data flow from the real economy is mixed, high wage growth is not broad-based, and the general outlook for CPI inflation is positive. We expect headline inflation to moderate below 3% YoY in July and stabilise around 2.5-3.0% YoY in the months ahead. Overall, we think this combination should allow the NBP to cut rates further by as much as 50bp at the next meeting in September and a further 25bp at the November meeting.