Global developments remain in focus and the situation has been volatile. Locally, the Czech central bank will hold a key event this week. We do not expect any change in the key policy rate. As far as data releases are concerned, Poland will publish industrial output growth in February, producer prices as well as wage growth and employment. Other than that, trade data and the current account balance will be released in Poland. Current account data is also scheduled for release in Romania, Serbia and Slovakia. The unemployment rate is due in Slovakia and Croatia. Croatia will release wage growth as well. Finally, on Friday after the market closes, Moody’s is scheduled to review Poland’s rating and outlook.  .
FX market developments
CEE currencies have been weak against the euro and the situation has not changed. Although further depreciation did not take place throughout last week, the EURCZK is close to 24.5, with the EURPLN moving toward 4.30 and the EURHUF above 390. Global developments and the situation regarding the conflict in the Middle East will determine the FX market in the region. Local factors are of less importance, although pricing out the previously expected monetary easing may additionally affect CEE currencies. This week, Czechia’s central bank will hold a rate setting meeting. We expect the policy rate to remain flat at 3.5%. While we have heard some voices regarding monetary easing if core inflation declines, the current inflationary risk will probably weigh on the rhetoric of the Czech central bank as well. So far, we have heard Poland’s central bankers mentioning limited space for monetary easing and their taking a “wait-and-see” approach (Kotecki, Janczyk). The Hungarian central bank also expressed cautiousness and a data-driven approach. In Romania, the statement that elevated oil prices will affect the inflation trajectory was a direct one.
Bond market developments
Bond markets were on a roller-coaster last week. Yields surged sharply on Monday, only to correct just as quickly following Trump’s verbal intervention suggesting that the war would end soon. Since then, 10Y yields in CEE have been rising steadily, in some cases returning to Monday’s highs (Hungary at 7.3%) or even surpassing them (Romania at 7.3% vs. 7% previously). Markets appear to have shifted their focus not only to inflation, but also to fiscal costs and the degree of fiscal headroom countries can deploy to cushion the economic impact of high energy prices. Eurobond spreads widened slightly, with the most noticeable move in Romania. Romania’s Ministry of Finance cancelled two government securities auctions last week in response to the rise in yields, while Czechia reduced the amount offered in T-bond auctions, opting instead to issue more T-bills. Slovakia’s Debt Agency faced weaker demand (EUR 385mn) for its retail bond issuance compared to both last year and its intended target (EUR 400–500mn), partly because the coupon had been set before the turmoil in bond markets began.