Despite the approaching end of the year, the CEE region will be busy this week, just like the global story. On the data side, this week we will see mainly numbers from Poland with the final November inflation today, which should confirm a 2.4% YoY rate and refine our estimates of core inflation, published tomorrow. For now, we see a decrease in core from 3.0% to 2.8%.

On Thursday, we will also see numbers from the labour market in Poland. However, the main attention should be paid to the last meetings of the National Bank of Hungary and the Czech National Bank this year. Both central banks should leave rates unchanged at 6.50% and 3.50%, but the focus will be on lower inflation profiles.

The NBH will also publish a new forecast on Tuesday, which should see lower inflation due to the extension of government measures and lower inflation compared to the NBH forecast in the last two months. The market is speculating that the new forecast could open the door to rate cuts next year. We still believe that this will only be the case in the second half of the year. The CNB will not publish a new forecast this time, but there could also be talk of lower inflation due to November’s downward surprise and the government’s intention to subsidise some of the energy prices for households.

Friday’s trading turned the mood back to risk-off, which again left CEE currencies exposed to the shrinking interest rate differential coming from the sell-off in EUR rates. As we expected, EUR/CZK returned higher again, and the range of 24.250-300 seems fair to us ahead of the CNB meeting on Thursday. However, the main underperformer on Friday was the Hungarian forint, reaching its weakest value since the beginning of November. We also see tomorrow’s NBH meeting as a risk for weaker FX, given that the central bank does not have much room to increase its hawkishness, and a lower inflation profile will support the market’s bets on upcoming rate cuts. For now, we do not expect EUR/HUF to return lower, and if the market sees any dovish signals, we can test the 386-388 range soon.

Frantisek Taborsky