A dense run of data releases and central bank decisions is about to move through Central and Eastern Europe this week, and ING's Frantisek Taborsky argues traders may be misreading how dovish several of the region's policymakers are actually about to be.
Czech and Hungarian Factory Data Kick Off the Week
The week opens on Monday with July industrial production figures from both the Czech Republic and Hungary. These readings on factory output offer an early gauge of how each economy is holding up and set the stage for the inflation numbers due later in the week.
Hungary's Inflation Could Tick Up After Months of Declines
Hungary releases its August inflation figure on Tuesday, and ING expects it to edge up from 1.2% to 1.4%. That would mark a shift after several consecutive months in which price growth had been steadily falling, making even a small uptick worth watching.
Turkey's Central Bank Likely to Hold at 37% Again
On Thursday, the Central Bank of Turkey is expected to leave its policy rate unchanged at 37%. ING believes the bank will pause before resuming rate cuts, since it already restarted repo auctions two weeks ago, a move that pulled the effective market rate lower without touching the official rate. In effect, some easing has already filtered through the market, giving the central bank room to wait before cutting formally.
Romania's Annual Inflation Set for a Sharp Drop
Romania publishes its August inflation data on Friday, and ING expects it to fall sharply from 8.2% to 6.5% year-on-year. The bulk of that decline is attributed to base effects, meaning prices had jumped unusually fast in the same month a year earlier, which makes this year's annual comparison look much lower even though monthly price growth has actually picked up somewhat.
The Czech National Bank Goes Quiet Just as Rhetoric Turns Dovish
In the Czech Republic, the CNB's blackout period begins on Thursday, the stretch during which board members stop making public comments ahead of a policy decision. Before that window shuts, ING expects more headlines from the bank board over the coming days, and expects the tone coming out of those comments to be notably more dovish than the aggressive tightening currently priced in by markets.
Why the Rate Gap Matters for the Koruna and the Zloty
Regional rates rallied last week on the back of broader global relief, which had already trimmed expectations for rate hikes in the Czech Republic and Poland. Even so, markets are still pricing in roughly 80 basis points of tightening in both countries, a level ING views as excessive. If that pricing continues to unwind, the interest-rate differential between these currencies and the rest of the market would narrow, making it less attractive to hold them. ING expects that to weigh moderately on Central and Eastern European currencies, particularly showing up as mild weakness in the EUR/CZK and EUR/PLN pairs.
