This week will be relatively quiet in terms of data, but we will see two central bank meetings – on Tuesday, the National Bank of Hungary, and on Wednesday, the Czech National Bank. The NBH will likely leave rates at 6.50% and present a new forecast. Forward guidance should remain hawkish, and we are unlikely to see much change here. The new forecast also should not see too many changes from the last version in June, and overall the meeting seems more like a non-event and confirmation of the earlier stance. Our economists have just revised our NBH path and we now expect rates to remain unchanged in the first half of next year.

The CNB will also likely leave rates at 3.50%, and there will be no new forecast at this meeting. Communication should also be hawkish, and we are likely to see some escalation in rhetoric given the surprise upward revision in wages in 2Q. Several members of the Bank Board have already said that the cutting cycle is over, which is also our view, and we believe that the next step is a hike. Although this is not on the table at the moment, the market will be looking at how sensitive the central bank may be to rising inflation in the future and the probability of a rate hike over the next year, where rate stability is currently priced in.

In Poland, rating agency Moody’s downgraded its outlook from stable to negative (A2), as expected, on Friday after closing hours. The decision comes after Fitch’s earlier move to downgrade its outlook, where the rating is already one notch lower. Both agencies mention the deteriorating outlook for fiscal policy. In recent days, we have seen the Polish zloty underperform its CEE peers, and this is likely to be the case today as well. However, EUR/PLN remains range bound at 4.240-270, and if we go to the upper bound, it could be a good opportunity for the market to fade.

Both currencies have seen a decent rally in recent weeks, and we believe there is still some room for gains. The CNB probably has greater potential to support FX than the NBH given its long position in Hungray’s forint already. EUR/CZK is likely to test new lows below 24.250 and eventually go to 24.000. EUR/HUF saw a small correction on Friday, but positive conditions remain and we should go back below 390.

Frantisek Taborsky