Introduction to Central Bank Meetings
This week is expected to be relatively quiet in terms of economic data. However, two significant central bank meetings will take place: the National Bank of Hungary (NBH) on Tuesday and the Czech National Bank (CNB) on Wednesday.
National Bank of Hungary Meeting
The NBH is likely to leave interest rates unchanged at 6.50%. They will also present a new forecast, which is expected to show minimal changes from the previous version in June. The forward guidance from the NBH is anticipated to remain hawkish, meaning they will continue to prioritize controlling inflation over stimulating economic growth. This meeting is not expected to bring about significant changes, as the bank’s stance has been consistent. Economists have revised their expectations for the NBH’s rate path, now predicting that rates will remain steady in the first half of next year.
Czech National Bank Meeting
The CNB is also expected to keep interest rates at 3.50%. There will be no new forecast presented at this meeting. The communication from the CNB is likely to be hawkish, with an emphasis on combating inflation. Given the recent surprise upward revision in wages, some escalation in rhetoric is anticipated. Several members of the Bank Board have already indicated that the cycle of cutting interest rates is over, suggesting that the next step could be a rate hike. Although a rate hike is not currently on the table, the market will be watching for signs of how sensitive the central bank is to rising inflation and the potential for future rate increases.
Developments in Poland
On Friday, the rating agency Moody’s downgraded its outlook for Poland from stable to negative, citing concerns over the country’s fiscal policy. This move follows a similar downgrade by Fitch earlier. The Polish zloty has been underperforming compared to its Central and Eastern European (CEE) peers and is likely to continue this trend. However, the EUR/PLN exchange rate remains within a specific range, and reaching the upper bound of this range could present an opportunity for the market to adjust.
Currency Outlook
Both the Czech koruna and the Hungarian forint have seen significant rallies in recent weeks. There is still potential for further gains, particularly for the koruna, as the CNB has greater leeway to support its currency. The EUR/CZK exchange rate is expected to test new lows, potentially reaching 24.000. After a minor correction, the EUR/HUF rate is also expected to continue its downward trend, moving back below 390.
Conclusion
In conclusion, this week’s central bank meetings in Hungary and the Czech Republic are expected to maintain their current stances, with a focus on controlling inflation. The potential for future rate hikes, especially in the Czech Republic, will be closely watched. Meanwhile, Poland’s downgrade by Moody’s may impact the zloty’s performance against its peers. Overall, the currencies of these countries have shown resilience and may continue to see gains, especially the Czech koruna, as their central banks navigate the current economic landscape.
