Commerzbank's Tatha Ghose anticipates that the Czech National Bank (CNB) will maintain its policy rate at 3.50%, but notes that upside inflation risks are emerging due to a surge in energy prices, particularly domestic fuel and wholesale natural gas costs, which have risen sharply. Ghose sees a growing likelihood of at least one 25 basis point rate hike by the CNB later in 2026, unless the war situation resolves and oil prices decline significantly within months. Despite this hawkish outlook, the Czech koruna (CZK) has not appreciated, as global risk aversion is offsetting the support from rising rate expectations. As a result, Commerzbank expects the EUR/CZK pair to trade sideways in the coming months, with opposing forces balancing each other out [1].
BNY's Geoff Yu highlights fiscal stress as a major driver for FX and carry trades in Central and Eastern Europe (CEE). Romania is facing acute fiscal and external imbalances, with both twin deficits nearly reaching 8% of GDP as of Q4 2025, exacerbated by the recent collapse of its government, which introduces significant short-term fiscal uncertainty. This situation is seen as potentially destabilizing for Romania's currency, which has materially low real rates. In contrast, Poland and Hungary, while also approaching high single-digit fiscal deficits, have benefited from improved current account balances and increased inbound FDI and current transfers, particularly for Hungary following its election. Yu expects further fiscal divergence across the region, which should be reflected in yield curves and currency holdings. He notes that no regional central bank appears willing to push for higher rates, and suggests that fiscal issues, rather than inflation, pose the bigger threat to inflation expectations in the near term [2].
Both sources agree that external circumstances, such as energy price shocks and fiscal uncertainty, are driving inflation pressures and currency dynamics in the region. However, while Commerzbank sees a potential for future rate hikes in the Czech Republic, BNY observes a lack of assertiveness among regional central banks to raise rates, emphasizing fiscal divergence as the primary concern for currency stability and investor flows [1][2].
CONCLUSION
Central and Eastern European currencies are facing a complex mix of inflation risks from energy price shocks and fiscal stress, with policy responses remaining uncertain. While the Czech koruna is expected to trade sideways due to offsetting global risk aversion and rate expectations, fiscal divergence across the region is likely to influence currency flows and yield curves. Investors should monitor both inflation and fiscal developments for potential market shifts.