After yesterday’s lower-than-expected inflation in Hungary opened the door for National Bank of Hungary rate cuts at the next meeting in February, and the Central Bank of Turkey’s inflation report indicated that rate cuts are still on the table, today’s attention will shift to Poland and the Czech Republic.
In Poland, January inflation will be published, where we expect a further decline from 2.4% to 1.9% YoY, in line with market expectations. However, Polish inflation has shown the most downward surprises in the CEE region in recent months, which naturally creates downside risk today as well. After recent comments from the National Bank of Poland council, it seems that the March rate cut to 3.75% is a done deal unless we see a significant upward surprise in today’s inflation.
In the Czech Republic, we will see the breakdown of January inflation, which could indicate the strength of inflation in sensitive parts of the basket. Perhaps more attention will be paid to the Czech National Bank minutes. The central bank left rates unchanged last week at 3.50%, but indicated openness to discussing rate cuts at future meetings if core inflation slows. The minutes could show further details and support dovish pricing in the market, after the market overreacted to the January inflation print and discounted some rate cuts, in our view.
EUR/HUF’s upward movement quickly faded following yesterday’s weaker inflation, and we believe this will remain the narrative until the elections, where the market takes every opportunity to take new long HUF positions. In two weeks, the beginning of rate cuts by the NBH may be a test, but given the dovish market pricing, we do not expect much pressure on the forint. EUR/CZK rebounded slightly higher after the market returned to pricing rate cuts, and today’s minutes could reinforce this narrative and give EUR/CZK further upside to 24.300.
Frantisek Taborsky