Introduction to the CEE Region’s Economic Outlook
The Central and Eastern European (CEE) region is gearing up for a busy week, mirroring the global economic landscape. This week’s focus will be on Poland’s economic data, including the final November inflation rate, which is expected to confirm a 2.4% year-over-year increase. Additionally, the core inflation rate, to be published tomorrow, is anticipated to decrease from 3.0% to 2.8%.
Economic Data and Labour Market
On Thursday, Poland will release its labour market numbers, providing further insight into the country’s economic performance. However, the primary attention will be on the last meetings of the National Bank of Hungary (NBH) and the Czech National Bank (CNB) for the year. Both central banks are expected to maintain their current interest rates at 6.50% and 3.50%, respectively, with a focus on lower inflation profiles.
Central Banks’ Forecasts and Interest Rates
The NBH will publish a new forecast on Tuesday, which is expected to show lower inflation due to government measures and decreased inflation compared to the previous two months. This has led to market speculation about potential rate cuts next year. However, it is believed that any rate cuts will only occur in the second half of the year. The CNB will not release a new forecast but may discuss lower inflation due to the November surprise and government plans to subsidize energy prices for households.
Currency Performance and Market Trends
Friday’s trading saw a return to risk-off sentiment, leaving CEE currencies vulnerable to the shrinking interest rate differential resulting from the sell-off in EUR rates. As expected, the EUR/CZK exchange rate increased, with a range of 24.250-300 considered fair ahead of the CNB meeting on Thursday. The Hungarian forint was the main underperformer on Friday, reaching its weakest value since early November. The upcoming NBH meeting poses a risk for weaker FX, as the central bank has limited room to increase its hawkishness, and a lower inflation profile will support market bets on upcoming rate cuts.
Conclusion
In conclusion, the CEE region is expected to experience a busy week, with a focus on economic data, central bank meetings, and currency performance. While some central banks may discuss lower inflation, it is unlikely to lead to immediate rate cuts. The market will be closely watching the NBH and CNB meetings for any signals on future interest rate decisions, which may impact currency exchange rates. As the year comes to a close, the CEE region’s economic outlook remains uncertain, with ongoing developments likely to influence market trends in the coming months.
