CEE Macro Weekly: Divergent appetite for rate cuts

Download report

TOP MACRO THEME(S):

• No cycle, yet fourth rate cut this year (p. 3) – the MPC in Poland delivered a 25 bps rate cut last Wednesday. The tone of communication suggests an inclination toward yet another 25 bps cut in November.
• The Czechs have chosen a new-old prime minister (p. 4) – As expected, ANO party won the parliamentary elections. Fulfilling the election promises signals a worsening of the fiscal outlook.

WHAT ELSE CAUGHT OUR EYE:

• ROM: As expected, the NBR left interest rates unchanged. The central bank assessed that the temporary effects stemming from the expiry of the electricity price cap and the VAT hike were “above expectations.” At the same time, it noted that inflation is likely to reach a plateau at the end of 3q25 before gradually declining, with disinflation supported by fiscal tightening. Accordingly, despite nearly double-digit inflation, we do not expect a rate hike, which had also been ruled out earlier by Governor M.Isărescu. The latest data and the tone of the decision prompted us to revise our assumptions regarding the earliest possible timing for rate cuts, which we now see beginning at the start of 2q26.
• CEE: Inflation in Czechia and Hungary surprised on the downside. However, the momentum of underlying inflationary pressures has not changed significantly (see p.2), so the monetary policy outlook remains unchanged.
• HUN: Minutes of the MPC’s September meeting showed that the decision to keep rates unchanged was unanimous and the only option considered. It was noted that “changing the forward guidance was not warranted,” while a cautious approach to policy remained necessary. Economy Minister M.Nagy said that although real rates should stay positive, their current level is too high and the inflation target could be met with lower rates. He added that high rates have boosted carry-trade activity, while U.S.-denominated debt-servicing costs are among the highest in the region. MNB Chief Economist A.Banai noted that the pass-through effect has doubled — it now takes two instead of four quarters for a 1% currency depreciation to add 0.15 pps to CPI inflation.
• HUN: The government will introduce a new subsidized corporate loan program offering a preferential fixed interest rate of 3.0% (vs. MNB’s current policy rate of 6.50%). Its fiscal cost is estimated at HUF 60 billion in 2026. The program will target SMEs and apply to working capital loans, which previously carried an interest rate of 4.5%. By contrast, subsidized investment loans have already carried a 3.0% rate, so the change is likely to affect mainly the operating costs of businesses rather than investment demand.
• ROM: The Statistics Office confirmed 2q25 GDP growth at 0.3% y/y (nsa), while in seasonally adjusted terms the acceleration versus the previous quarter was even stronger than initially estimated, reaching 2.3% y/y.

THE WEEK AHEAD:

• The week will start with the release of September inflation data in Romania, which we expect to edge down slightly to 9.5%. In addition, the final reading of September CPI and the August balance of payments will be published in Poland. Beyond that, the calendar includes economic activity indicators, notably industrial production data from Hungary and Romania.