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2021/07/08 / Erste Group Research

Moving to a new normal?

Czech and Hungarian central banks are committed to further tightening, while Polish will try to delay its first rate hike to 4Q21. Government bonds have been pricing the tightening what should limit the upward move of yields. There will be less bond supply going forward.

Bond yields rose by as much as 80bp in 1H21 in several CEE countries, spurred by higher inflation and strong economic recovery that boosted interest rates expectations. The upward move was less pronounced in 2Q21 and curves flattened in Czechia, Hungary and Poland after short-term yields started to anticipate an earlier start of tightening.

The Czech and Hungarian central banks delivered their first rate hikes to 0.5% and 0.9%, respectively, in June. The CNB could enact 1-2 more hikes this year, with further increases next year, bringing the key rate up to 1.75% by end-2022. The MNB should increase its key rate to 1.35% by end-September via gradual hikes at each rate-setting meeting and may push the rate to 1.5% by end-2021. The Polish central bank will try to delay its first 15bp rate hike to 4Q21 and raise the key rate to 0.5% by June 2022.

Although governments have not started any material consolidation after last year’s unprecedented pandemic-induced fiscal response, deficits in CEE are expected to narrow from 7.4% of GDP to 6% in 2021. The improvement should be mainly due to cyclical rebound of tax revenues while expenditures should be less burdened by COVID-19 support programs. The later will come in full effect in 2022, bringing many CEE deficits to 3-4% of GDP without extra efforts.

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General information

AuthorErste Group Research
Product nameCEE Bond Market Report
Topic in focusFX, Macro/ Fixed income
Economy in focusCEE, Croatia, 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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