Falls in CEE interest rate expectations look overdone

Investors generally revised down their interest rate expectations across Central and Eastern Europe (CEE) over the past month, partly reflecting weaker-than-expected inflation prints and more dovish communications from central bankers. Investors are now pricing in 75-100bp of interest rate cuts in Czechia and Poland by year-end. However, we think that the scale of these cuts as well as those priced into financial markets for 2024 in most countries in the region look overdone. After all, underlying month-on-month gains in core consumer prices are still far stronger than what is needed for central banks to reach their inflation targets. And, despite weakness in economic activity, labour markets have remained incredibly tight, which we think will prevent wage pressures from subsiding quickly.