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2019/04/15 / Erste Group Research

CEE Market Insights

The zloty stood out slightly from the CEE pack with a mild appreciation last week vs. the euro. For the short term, we do not see domestic factors as supporting the PLN. The US dollar fell last week, however, which is usually beneficial for the zloty. The Romanian leu and Hungarian forint fell against the euro last week. Inflation is running highest in these two countries in the region, while central banks are hesitant to tighten in a more pronounced way. The NBR’s tight liquidity management could prevent abrupt leu depreciation in the short run. The forint could also remain relatively stable in the absence of major external market moves, as there are not many important releases until the next monetary meeting to be held on April 30.

A s we have discussed earlier, Czech yield spreads seem a bit too high vs. German Bunds; the recent narrowing of the 10Y spread thus matches our view. On the other hand, Hungarian 10Y spreads went up further. Swap curves also show a notable increase, while this has been more muted in other countries, or there was none at all, last week. It will be very interesting to see the FX swap tender this Monday, as the 3M Bubor has so far failed to increase to the extent (+10bp) the MNB was communicating after its rate setting meeting.

Week Ahead: This week should be relatively calm in CEE, due to the Easter Holidays and lack of data releases. Croatia and Slovakia will conclude the string of March inflation releases, which have been pointing to higher inflation everywhere. This trend is expected to continue in Slovakia (increase to 2.6%, from 2.3% in February) and Croatia (increase to 0.7-0.8%, from 0.5% in February), although the levels are not as elevated as in the Czech Republic, Hungary and Romania, where inflation is already well above the central bank’s target or even outside the tolerance band. This could have an impact on tightening of monetary conditions via a rate hike (the Czech Republic) or tightening of liquidity (Hungary, Romania). Hungarian FX swap tenders could be especially important on Monday in this regard. Poland will also disclose its March inflation data, but that should just be a confirmation of its earlier published flash estimate (1.7%).

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General information

AuthorErste Group Research
Product nameCEE Insights
Topic in focusFX, Macro/ Fixed income
Economy in focusCroatia, Czech Republic, Hungary, Poland, Romania, Serbia, Slovakia, Slovenia
Currency in focusCroatian Kuna, Czech Koruna, Euro, Hungarian Forint, Polish Zloty, Romanian Leu, Serbian dinar
Sector in focus-
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