CEE Macro Weekly: One hike, one pause in CEE

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TOP MACRO THEME(S):

• More hawkish, but still on hold (p.3) – Poland’s MPC kept the reference rate unchanged at 3.75%, despite a significantly higher inflation path in the new NBP projection, with energy prices accounting for most of the upward revision.

WHAT ELSE CAUGHT OUR EYE:

• CZE: The CNB raised its key policy rate by 25bp to 4.00%, in line with both our and market expectations. The discount rate was increased to 3.00% and the lombard rate to 5.00%. The second rate hike this year came despite a positive surprise in September inflation and was supported by the latest CNB projection, which sees inflation rising to 3.2% in 2027, compared with 2.5% in the previous forecast. The decision was taken by a narrow 4–3 majority. Governor A.Michl stressed, however, that the hike does not necessarily mark the start of a new tightening cycle. We expect this to have been the final rate increase.
• POL: President K. Nawrocki appointed four members of the NBP Management Board: L.Kotecki, P.Litwiniuk and M.Zarzecki (current MPC members), as well as M.Kightley (former NBP Deputy Governor). Their nominations had previously been countersigned by Prime Minister D.Tusk. The appointments were intended to prevent disruption to the NBP’s operations after 4 November, when Deputy Governor A. Lipinski’s term expired.
• POL: The dispute over Poland’s Constitutional Tribunal has escalated significantly, after judge A.Korwin-Piotrowska – elected by the current parliament but not sworn in by President K.Nawrocki – issued an order suspending the Tribunal’s President B.Swieczkowski from his duties and announced that she was taking over the management of the institution. President K.Nawrocki and opposition parties challenged the legality of these actions, describing the situation as a constitutional crisis, while Prime Minister D.Tusk backed the changes as part of efforts to restore the rule of law. The legality of the competing claims over the Tribunal’s leadership remains disputed. A prolonged dispute could increase institutional risk and weigh on perceptions of Poland’s creditworthiness. Rating agencies have highlighted similar risks in the past. Institutional concerns, including developments surrounding the Constitutional Tribunal, were an important factor behind S&P’s downgrade of Poland in 2016. In recent years, however, rating agencies have tended to focus more broadly on political and institutional tensions and their potential impact on the process of economic policymaking. We therefore do not expect the latest developments, on their own, to negatively affect the outcome of S&P’s rating review, although the agency may flag the prolonged institutional dispute as a risk factor for future rating decisions. S&P’s review is scheduled later today.

THE WEEK AHEAD:

• This week, the focus will be on October inflation data. In Hungary, CPI inflation most likely accelerated to 2.0% y/y from 1.6% y/y a month earlier, while in Romania it may have increased to 6.9% y/y from 6.6% y/y in September. In Poland, final data are expected to confirm a decline in CPI inflation to 3.5% y/y from 4.1% y/y, supported by the reintroduction of measures limiting fuel price increases. Final data from Czechia should show inflation easing to 2.4% y/y from 2.5% y/y.
• Interest rates in Romania are expected to remain at 6.50% on Thursday.