CEE FX Flows: Carry Trade and Liquidity Amid Energy Shock

The core event is a sharp energy price shock. The Middle East conflict is driving oil prices into the $80-90/bbl range, with risks of further strength. For the energy-import-dependent CEE region, this is a direct threat to inflation forecasts, with Turkey, Romania, and Hungary identified as the most exposed economies.

In response, central banks across the region have adopted a unified wait-and-see stance. They have left key policy rates unchanged, as seen with Serbia's 5.75% rate. This pause is a direct signal that they are treating the surge as a temporary supply shock, not a fundamental shift in inflationary pressure.

The rationale for this patience is a more benign starting point compared to 2022. With inflation already below target and FX more stable, central banks have room to observe. As one analysis notes, the current environment lacks the strong demand and excess savings that fueled the last inflation surge, allowing for a policy hold.

The Flow: FX and Rates React to the Shock

The immediate market reaction was a clear flight to perceived safety. The Hungarian forint and Czech koruna led a regional rally in early 2026, driven by expectations of a hawkish central bank stance that lagged financial markets. This created a positive carry trade environment, with the forint emerging as the main carry star in the CEE3 region.

That rally has since stabilized. The National Bank of Hungary's unexpected dovish shift in December brought an end to the year-long forint appreciation, with the currency finding a new equilibrium. ING's forecast points to a return to a gravity line around 385 for EUR/HUF, indicating a period of stability after the recent pop.

Meanwhile, the Polish zloty faced headwinds. The EUR/PLN pair slipped to a nine-month low of 4.20 in December, pressured by geopolitical risks and a strong euro. While ING sees a neutral outlook for the zloty, the immediate flow was toward the euro, highlighting the market's risk-off tilt during the energy shock.

The Catalysts: What to Watch for a Shift

The central banks' wait-and-see posture is not indefinite. The key watchpoint is the duration of higher energy prices. If the Gulf conflict drags on, pushing Brent above $90 for more than a few months, the "supply shock" rationale weakens. ING's analysis notes that the current scenario assumes the conflict is short-lived, with only a "few tenths of a percentage point" impact on headline inflation. A prolonged shock would likely trigger a reassessment.

Upcoming inflation data is the first concrete test. Today, Romania, Slovakia, and Poland will publish February figures. These numbers will confirm whether the region's "more benign inflation backdrop" holds, as they did after the US-Iran conflict earlier this year. A significant uptick in core or services inflation would pressure central banks to reconsider their patience.

The most immediate catalyst is the ECB's next rate decision on March 19. As the region's monetary anchor, the ECB's move will set the tone for CEE policy. With the Fed also scheduled to meet the day before, the ECB's stance will be a major signal for the entire region's monetary path. Any shift in the ECB's guidance could force a synchronized re-evaluation by CEE central banks.