Central and Eastern European (CEE) markets are experiencing heightened volatility due to surging oil and gas prices, which have led to increased expectations for monetary tightening across the region. ING strategist Frantisek Taborsky reports that markets are currently pricing in approximately 125 basis points of additional tightening for both Poland and the Czech Republic, following a period where an average of 15 basis points of extra tightening was priced at the peak. This comes as 10-year US Treasury yields reach new highs and energy prices continue to climb, drawing parallels to the 2022 energy shock, when peak tightening expectations reached 210 basis points in Poland and 165 basis points in the Czech Republic. Despite a brief period of support for regional currencies from improving rate differentials, ING maintains a bearish outlook on CEE FX, citing ongoing pressure from energy markets and a weakening EUR/USD rate [1].
In Hungary, the National Bank of Hungary (MNB) has paused its rate-cutting cycle, keeping the base rate unchanged at 5.50%. At the same time, the MNB has lowered its medium-term inflation target from 3.0% to 2.5%, effective from 1 January 2028, while maintaining the existing 1 percentage point tolerance band. Despite this more ambitious target, the central bank has raised its 2027 inflation forecast sharply from 2.3% to 3.1%, citing higher global energy prices and increased tobacco excise taxes. Core inflation is now projected at 3.0% in 2027, with overall inflation expected to peak around 3% in mid-2027 before disinflation resumes. The new 2.5% target is not expected to be reached sustainably until mid-2028 [2].
Commerzbank’s Tatha Ghose argues that this combination of a lower inflation target and higher inflation forecasts should imply a more restrictive monetary policy stance. However, the MNB has not signaled any intention to hike rates, with policymakers indicating a data-driven approach that allows for holding or cutting rates in the coming months, explicitly excluding tightening as an option. This stance contrasts with the tightening sentiment seen in other CEE countries. The Hungarian forint remains weak, and Ghose warns that a recovery is unlikely until the MNB adopts a more hawkish policy stance [2].
Overall, both ING and Commerzbank highlight the significant impact of rising energy prices on monetary policy expectations and currency performance in the CEE region. While markets are pricing in further tightening for Poland and the Czech Republic, Hungary’s central bank is taking a less hawkish approach despite raising its inflation forecasts and lowering its target, contributing to continued weakness in the forint [1][2].
CONCLUSION
Rising energy prices are driving expectations of further monetary tightening across Central and Eastern Europe, with markets pricing in significant rate hikes for Poland and the Czech Republic. In contrast, Hungary's central bank has opted to hold rates and lower its inflation target, despite raising its inflation forecasts, leading to continued weakness in the forint. The divergence in policy responses underscores ongoing uncertainty and pressure in regional FX markets.