CEE Macro Weekly: Hawkish sentiment is gaining ground in Czechia

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TOP MACRO THEME(S):

• Do higher oil prices weaken the PLN and EUR? (p.3) – Oil prices are not inherently positive or negative for currencies. Their impact depends on the underlying driver: demand-led increases can be neutral or supportive for the PLN and the EUR, while supply-driven shocks typically weigh on both currencies, especially the PLN.

WHAT ELSE CAUGHT OUR EYE:

• CZE: CNB governor A.Michl said that a rate hike in June is a real possibility, arguing that such a move should dampen excessive money supply. He also pointed to elevated core inflation. Earlier this week J.Prochazka (considered more dovish member) signalled that the June policy meeting is finely balanced between keeping rates unchanged and delivering a one-off 25bp hike. Both members indicated that after such a move, the CNB would adopt a wait-and-see stance, meaning that the rate hike would not mark the beginning of a tightening cycle.
• CZE: The Ministry of Finance has presented a proposal of a revision to the fiscal-structural plan, according to which the fiscal deficit is expected to reach 2.6% of GDP this year (compared with 2.2% of GDP projected in April, versus 2.0% of GDP in 2025) and deepen further to 2.8% of GDP in 2027. Fiscal consolidation is not expected to begin until 2028, amounting to 0.7% of GDP, followed by adjustments of 0.4% of GDP in both 2029 and 2030. These years fall within the pre-election period (the next parliamentary elections are scheduled for 2029), which implies a high risk of fiscal slippage. Under these assumptions, general government debt is projected to rise and peak at 46.8% of GDP at end-2027, before gradually declining to 46.4% of GDP by end-2030. The macroeconomic assumptions underpinning the plan envisage an acceleration in GDP growth from 2.1% in 2026 to around 2.5% in the period 2027–2029, which should provide an additional source of tax revenues. The plan still requires approval by the European Commission.
• POL: The government has adopted the assumptions for the 2027 budget bill. Under these assumptions, it forecasts CPI inflation at 2.5% next year and GDP growth at 3.1%. These projections are very close to the market consensus. Wages in the public sector are expected to increase by 3%, while average wages in the national economy are projected to grow by 5.6%. The minimum wage is planned to be raised to PLN 4,950, representing a 3.0% increase, the same rate as in 2026.
• ROM: Parliament approved an extension of the capped markup scheme on selected basic food products until the end of the year (March 2026 previously), preserving existing margin limits across the supply chain. The margin cap applies to a range of products, including bread, milk and dairy products, eggs, and vegetables.

THE WEEK AHEAD:

• Attention will focus on Thursday’s CNB meeting. Until recently, we had assumed that interest rates would remain unchanged, but in our view, the CNB Governor's latest remarks have effectively ruled out such a scenario. We therefore expect the Czech central bank to tighten monetary policy by 25 basis points on June 18.