With the start of a new month, we are going to have a very busy week in Central and Eastern Europe. Today, July inflation figures will be released in Turkey. We expect monthly inflation to rise to 2.5% from 1.4% in June due to higher energy prices and automatic tax adjustments. Still, thanks to the base effect, this should lead to a decline in headline inflation from 35.0% to 34.1% YoY.
Tomorrow, inflation data for the Czech Republic will also be released, where we expect headline inflation to decline from 2.9% to 2.6%, one-tenth below market expectations. On Wednesday, economic data from Hungary and the Czech Republic will follow.
On Thursday, we expect the Czech National Bank to leave rates unchanged at 3.50%, and the main focus will be on the new forecast and forward guidance regarding the end of the cutting cycle.
On Friday, inflation in Hungary will be published, where we expect a decline from 4.6% to 4.0%, one-tenth below market expectations. The National Bank of Romania will decide on rates, which should be a non-event at 6.50%, with a focus on new comments on fiscal consolidation and its impact on inflation.
Friday’s US labour market data shook things up in the CEE region, and the weaker dollar is positive for FX here. The question for today’s opening is whether CEE rates will keep pace with the rally in core rates. Friday’s movement in rate differentials could indicate some mitigation of the positive impact of the weaker USD. However, our baseline view is still a stronger CEE at the end of this story, given the movement in core markets.
The Czech koruna should see support from a hawkish CNB and new forecasts, and we remain bullish here – but the scope for further rallying is limited and EUR/CZK will likely only slowly grind towards 24.500. After higher-than-expected inflation in Poland last week, we expect EUR/PLN to stabilise in the 4.270-280 range, and we are neutral here. The HUF market is seeing high volatility in rates, which should also be reflected in greater FX volatility. At the same time, this week’s economic data should support a dovish stance, and we therefore expect EUR/HUF to return to the 399-400 range.
Frantisek Taborsky