CEE Macro Weekly: Do Two Adjustments Make a Cycle?

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TOP MACRO THEME(S):

• A new pulse in the housing market (p. 3) – Residential transaction price growth remained subdued in 1q25 due to weak demand and high interest rates, with declines on some local markets. A gradual recovery in demand and reduced housing supply may lead to slight price increases by year-end.

 

WHAT ELSE CAUGHT OUR EYE:

• POL: The MPC lowered interest rates by 25 bps to 5.00%. The decision came as a surprise to both markets and ourselves, particularly in light of recent statements by MPC members. Nonetheless, in our view, the move is broadly consistent with the evolving disinflationary backdrop. The primary justification for the rate cut appears to be the anticipated decline in CPI inflation into the NBP’s target range (2.5% ± 1 pp) in the coming months. According to the central bank’s July projection, average inflation in 2025 will account for 3.9% (1pp below the March forecast) with a return to the target range projected for 2026. The projection assumes liberalization of energy price from 4q25 – a scenario we view as unlikely. This assumption adds app. 1pp to the NBP’s inflation path relative to our own forecast for 4q25 and 1q26. The core inflation trajectory was revised down once again, reflecting the persistence of a negative output gap and the alignment of productivity and unit labour costs dynamics. On the growth front, the 2025 GDP forecast was marginally revised down to 3.6% (-0.1pp), while projections for 2026 and 2027 were raised to 2.9% and 2.3%, respectively (+0.2pp). These adjustments primarily reflect a recalibration of the investment trajectory, driven by the timing of EU fund absorption. During the press conference, NBP Governor noted that future moves will depend on incoming data, but stated there were “no objections” to another cut in September. He added that, should inflation sustainably decline to 2.5% over the policy horizon, interest rates could fall to as low as 3% to support growth. Given the Governor’s history of shifting rhetoric, we maintain our baseline scenario, which assumes a further rate cut at the November meeting. However, a September adjustment cannot be ruled out and will largely hinge on forthcoming decisions regarding energy pricing and the contours of the 2026 budget.
• CZE: CPI inflation (flash) rose to 2.9% y/y in June from 2.4% y/y in May, as expected by economists and slightly above CNB forecast. The acceleration of inflation was broad-based, driven not only by food and energy (fuels) but also by core components (including services). According to the last week's CNB policy meeting minutes, the room for further cuts is very limited.
• ROM: The 1.3 RON/kWh retail electricity price cap expired on 1 July, ending a three-year emergency regime. Tariffs are now fully market-based. As a result, household and business electricity bills are expected to rise by 25–40%. To mitigate the impact, the government will issue monthly e-vouchers of 50 RON to 2 mn low-income households. The NBR estimates the liberalisation will add 0.5-0.6pp to annual CPI and dampen consumption.

 

THE WEEK AHEAD:

• This week will be relatively quiet in Poland, while there are some important macro releases from other CEE economies. On Tuesday we will get to know June CPI inflation from Hungary, on Friday from Romania. On Tuesday Romanian central bank will decide on rates – wo don’t expect any changes amid still elevated CPI inflation.

Drukuj