CEE Macro Weekly: The doves are back in town

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TOP MACRO THEME(S):

• The doves are back in town (p. 3) – despite a relatively hawkish tone accompanying a non-standard scale of the NBP rate reduction in May, the message from the MPC supports scenario of further monetary easing in 2025.
• Transylvania express (p.4) – political chaos in Romania prompted concerns about the course of future economic policy. While polls point to victory of far-right candidate G.Simion in presidential race, forming a government after the collapse of ruling coalition will not be easy in any scenario.

WHAT ELSE CAUGHT OUR EYE:

• CNB cut interest rates by 25bp, in line with our expectations. Monetary easing was supported by six out of seven Board members. It was justified by substantial decline in global commodity prices and weaker global economic outlook. However, the persistence of domestic inflationary pressures – as stated explicitly in the press release – limits the room for further cuts. Decision was accompanied by the main figures from new Spring Forecast, which assumes one cut in 2q25 followed by broadly stable rates. Inflation is expected to reach 2.5% on average in 2025 and to decrease to 2.2% next year (0.1pp upward revision against winter forecast). Economy is expected to grow by 2,0% this year (unchanged from previous forecast), while the CNB forecasts only a minor acceleration (to 2.1%) in 2026 (2.4% previously). Risks to the outlook are perceived as inflationary overall. We maintain our forecast of one more cut this year, as the CNB has not yet clearly signaled a termination of monetary easing cycle, however, we see a high probability of interest rates remaining stable for quite some time.
• Z.Kurali, who was recently appointed a deputy governor of the MNB, will be responsible for the monetary policy functions of the bank. Change is likely linked to newly elected governor M.Varga building his team in the bank. Z.Kurali will take over his functions from B.Virag.
• PMI indexes in April brought mixed signals in the CEE. In Czechia and Romania, it indicated a slower pace of contraction. In the former one PMI ticked up to 48.9pts. from 48.3 pts., amid an increase (for the first time since June 2022) of new orders, mainly domestic ones, while backlogs increased for the first time in two years. PMI in Romania increased to 48.3pts. from 46.9pts. on the back of decelerating output contraction, slower fall in orders and reduction in employment. Meanwhile, Polish industry expanded for the third consecutive month, although at slower pace than in March (index fell to 50.2pts. from 50.7pts.). Output growth was the strongest since February 2022, although it was accompanied by a slight decline in orders, interrupting a three-month upward trend. Assessment of future outlook deteriorated across the CEE on the back of cloudy global trade perspectives.

THE WEEK AHEAD:

• GDP growth estimates for the 1q25 from Poland and Romania (both due Thu.) are among the most anticipated releases. Poland’s GDP growth likely slowed to just below 3% y/y, while Romania’s may have accelerated to around 2.0%. Inflation data for April will be released in Romania on Tuesday, along with final estimates from Czechia (Tue.) and Poland (Thur.). Additionally, Romania, Czechia, and Poland will publish their current account figures for March. On Friday the NBR will decide on its monetary policy – the rates are expected to remain stable for now, despite the political turmoil.

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