CEE: Central banks in hawkish mode - ING

Yesterday's inflation figures in the region brought surprises in both directions. In Hungary, inflation surprised slightly down with a drop from 3.1% to 3.0% YoY. On the other hand, in the Czech Republic, it surprised on the upside with a rise from 2.2% to 2.6% YoY. In both countries, this is in line with the trend of surprises in recent months and our indications of risk. However, central banks are now in hawkish mode in Central and Eastern Europe (CEE) and while in Hungary this will not be a reason for a rate cut in October, in the Czech Republic it increases the probability of a pause in the cutting cycle, ING's FX analyst Francesco Pesole notes.

CEE FX remains fragile

"This morning we got inflation numbers for September in Romania as well. Inflation fell from 5.10% to 4.62%, slightly below the 4.70% consensus. At the last meeting in October, the central bank left rates unchanged after two cuts earlier. Our economists don't expect a rate cut at the meeting in November, but weaker inflation numbers leave this topic open."

"Although the first half of the week suggested stabilisation and finding ground underfoot, yesterday shows that the situation is not simple. As we have discussed here before, global risks have not changed much and CEE FX remains fragile. With higher inflation numbers in the Czech Republic, we see a chance for hawkish comments from the Czech National Bank that could support the koruna in the current uncertain environment."

"On the other hand, the National Bank of Hungary has already commented on the current situation, essentially ruling out a rate cut in October. However, EUR/HUF is back above 400 and not far from 402. Thus, the koruna and zloty seem to be more defensive in these conditions, while the forint, as usual, remains more sensitive to global exposure."