CEE Perspective Weekly Digest- Issue 21

ECB maintains interest rates amid uncertainty over inflation and growth

On 29 October, the European Central Bank maintained its three key interest rates, keeping the deposit facility rate at 2.50%, the main refinancing operations rate at 2.65% and the marginal lending facility rate at 2.90%. The decision comes amid uncertainty surrounding energy prices, inflation and the economic outlook. Higher energy costs could increase inflationary pressures while weighing on business activity and household purchasing power, complicating the balance between price stability and economic growth. 

The Governing Council reiterated its commitment to ensuring that inflation stabilises sustainably at its 2% medium-term target. It also confirmed that future monetary policy decisions would remain data-dependent and taken on a meeting-by-meeting basis, without pre-committing to a particular interest-rate path. The interaction between energy prices, financing conditions and economic activity will remain important in determining the direction of monetary policy. 

What this means for CEE markets: The ECB's decision has direct implications for euro-area economies in Central and Eastern Europe, where interest rates influence borrowing costs, credit demand and business investment. Non-euro-area economies are also affected through cross-border banking relationships, capital flows and exchange-rate developments. For a region with substantial infrastructure and industrial investment needs, predictable financing conditions remain particularly important. Continued uncertainty over inflation and energy costs could affect investment decisions and the availability of long-term financing. 

ESMA and EBA recommend further simplification of EU Taxonomy reporting

On 29 October, the European Securities and Markets Authority (ESMA) and the European Banking Authority (EBA) published technical advice proposing targeted simplifications to sustainability disclosures under the EU Taxonomy Regulation. The recommendations form part of the European Commission's broader efforts to reduce reporting complexity while maintaining useful and comparable sustainability information for financial-market participants. 

ESMA recommends narrowing mandatory operating expenditure reporting to non-capitalised research and development expenditure, simplifying group-level disclosures and removing the weighted-average KPI. The EBA proposes eliminating the Fees and Commissions and Trading Book KPIs, alongside further simplifications to reporting requirements for credit institutions and investment firms. The recommendations have been submitted to the European Commission for consideration and do not yet change the applicable reporting framework. 

What this means for CEE markets: Simplifying EU Taxonomy reporting could reduce compliance costs for banks, investment firms and other financial-market participants across CEE, particularly smaller institutions with more limited administrative resources. However, maintaining reliable sustainability information remains important for investment analysis, risk management and capital allocation. The Commission's response will therefore be relevant for ensuring that the EU's simplification agenda supports financial-market development without creating additional data gaps or reducing transparency for investors. 

ESM issues €1 billion digital bond in milestone for European capital markets

On 26 October, the European Stability Mechanism (ESM) raised €1 billion through its first digitally native bond issuance, marking a significant development in the application of distributed ledger technology (DLT) to European securities markets. The transaction involved the ESM, Deutsche Bundesbank and Clearstream, using the Eurosystem's Pontes infrastructure for settlement in central bank money. 

According to the joint announcement by the participating institutions, the transaction combines digital issuance with established European financial-market infrastructure. The Bundesbank acts as issuing and paying agent, while Clearstream provides the digital infrastructure for issuing and settling the bond. The arrangement is designed to connect tokenised securities with traditional markets, including potential stock-exchange listing and collateral eligibility. 

What this means for CEE markets: The development could have longer-term implications for smaller European capital markets, including those in CEE, where fragmented infrastructure and relatively limited market depth can constrain cross-border investment. More efficient and interoperable digital securities infrastructure could eventually facilitate market access, reduce operational complexity and support new issuance opportunities. However, the benefits for the region will depend on whether emerging technologies are accessible to smaller market participants and can operate across national systems.

Latvia: Central bank reports strong recovery in lending to businesses and households

On 28 October, Latvijas Banka published its 2026 Financial Accessibility Report, highlighting a significant recovery in bank lending to businesses and households. In 2025, outstanding loans to non-financial corporations increased by 15.3%, while household lending grew by 9.9%. This momentum continued into the first half of 2026, with annual growth reaching 14.4% for corporate loans and 10.6% for household loans, among the fastest rates in the euro area. The central bank attributed the improvement partly to greater willingness among lenders to finance a broader range of borrowers, including smaller businesses and first-time customers. 

Despite this progress, Latvia's outstanding credit-to-GDP ratio remains among the lowest in the euro area, reflecting persistent structural challenges in financial intermediation. Relatively high borrowing costs, strict collateral requirements and limited financing alternatives continue to constrain access to credit. The central bank emphasised the need to strengthen competition, diversify financing instruments and explore alternatives such as loan securitisation. The findings illustrate both the recovery of Latvia's banking sector and the broader challenge facing CEE economies: translating stronger credit growth into sustained business investment and deeper financial markets. 

Czechia: Central bank policymaker signals possible November interest-rate increase

On 27 October, Czech National Bank (CNB) Board Member Jakub Seidler indicated that he was leaning towards a further interest-rate increase at the bank's upcoming monetary policy meeting on 5 November. In an interview published by the CNB, Seidler pointed to resilient domestic demand and persistently elevated energy prices as reasons for considering a 25-basis-point increase. The CNB had already raised its main policy rate to 3.75% in June 2026, becoming the first central bank in Central Europe to tighten monetary policy in response to inflationary pressures linked to the Middle East conflict. 

Seidler stressed that a possible November increase would not necessarily mark the beginning of a broader tightening cycle, given continued uncertainty surrounding the global economy. The comments highlight the different monetary-policy challenges facing CEE economies, particularly those outside the euro area. While the ECB has maintained its interest rates, the Czech central bank is considering further tightening to contain domestic inflationary pressures. For Czech businesses and financial markets, higher interest rates could affect borrowing costs, credit demand and investment decisions, while also influencing exchange-rate expectations and capital flows. The final decision will be taken by the CNB's Bank Board on 5 November. 

Czechia: Central bank climate stress test finds banking sector resilient despite transition risks

On 26 October, the Czech National Bank published a discussion paper examining climate-related risks to financial stability, presenting the results of a stress test assessing the banking sector's resilience under an adverse climate-transition scenario. The analysis models a delayed and abrupt transition to a low-carbon economy, incorporating higher carbon prices, differences in industrial structures and the effects of declining competitiveness in emissions-intensive sectors. The results indicate that a severe transition shock could generate substantial credit losses and reduce banks' capital buffers, although the Czech banking sector would maintain adequate capital at the aggregate level, supported by its strong initial capital position. 

The study is particularly relevant for CEE economies, where industrial production, energy-intensive activities and differing national energy mixes can influence exposure to climate-transition risks. Its findings highlight the importance of considering regional economic structures when assessing the financial implications of EU decarbonisation policies. For banks and financial supervisors, the analysis also demonstrates how climate-related risks can be incorporated into conventional financial-stability assessments, helping identify vulnerabilities while supporting more informed lending, investment and risk-management decisions. 

Czechia: Government backs constitutional protection for the koruna

On 26 October, the Czech government endorsed a parliamentary proposal to enshrine the Czech koruna in the Constitution. The proposed amendment would establish the koruna as the country's constitutional currency, meaning that any future move to replace it with the euro would require a constitutional amendment. The government presented the initiative as a means of ensuring that a decision on euro adoption would require broad political support. The proposal must still pass through the parliamentary legislative process. 

The development reflects continuing differences across CEE regarding euro-area integration. For Czechia, retaining the koruna preserves an independent monetary policy and exchange-rate flexibility, while businesses and investors operating across borders continue to manage currency exposure. Although the proposal does not immediately change monetary arrangements, it signals the government's preference for maintaining the national currency and could influence longer-term expectations regarding euro adoption. 

Poland: Bank Pekao advances plans to issue Additional Tier 1 capital instruments

On 28 October, Poland's Bank Pekao announced that its Supervisory Board had approved the Management Board's decision concerning the issuance of Additional Tier 1 (AT1) capital instruments, according to the bank's official regulatory disclosures (Report 31/2026). The announcement marks a step towards a potential capital-market transaction involving instruments designed to strengthen banks' regulatory capital. AT1 securities form part of the Basel III capital framework and can provide banks with an additional source of loss-absorbing capital, subject to regulatory conditions. 

The development is relevant to the continued diversification of bank funding and capital structures in Poland, one of CEE's largest financial markets. AT1 issuance can broaden the range of bank capital instruments available to institutional investors while supporting banks' capacity to meet prudential requirements. The transaction's eventual implications will depend on its final terms, size and execution, but the decision illustrates the increasing sophistication of capital-management strategies in the region's banking sector. 

Slovenia: Central bank warns of rising ICT risks despite resilient banking sector

In its October 2026 Financial Stability Report, Banka Slovenije found that the country's banking sector remains resilient despite heightened geopolitical uncertainty, rising government bond yields and growing technological risks. Banks' aggregate total capital adequacy ratio stood at 20.1% at the end of the first half of 2026, while the Common Equity Tier 1 ratio reached 17.3%. The non-performing exposure ratio remained stable at 1.6%, indicating that credit quality has held up despite challenging economic conditions. 

However, the central bank warned that risks related to information and communication technology, including cybersecurity threats and the potential misuse of artificial intelligence, are increasing. It also highlighted vulnerabilities associated with housing-market overvaluation and the concentration of household savings in readily withdrawable bank deposits. The findings illustrate the importance of maintaining strong capital and liquidity buffers while adapting to technological change. For CEE financial institutions, Slovenia's experience highlights the need to balance credit growth, digital innovation and operational resilience.

• 3 November - European Parliament ECON Committee: MEPs will discuss the Pan-European Personal Pension Product (PEPP) Regulation, alongside the ECB's 2026 Annual Report. A joint ECON/EMPL public hearing will also examine measures to reduce the gender pension gap.

• 4 November - European Commission Work Programme 2027: The Commission is expected to adopt its 2027 Work Programme, alongside its annual report on simplification, implementation and enforcement. The programme will outline upcoming legislative priorities, potential withdrawals and regulatory simplification initiatives, with implications for financial services, the Savings and Investments Union and the EU's competitiveness agenda.

• 4 November - European Parliament BUDG Committee: MEPs will consider a draft opinion on the further development of capital-market integration and supervision within the EU. The discussion is relevant to ongoing efforts to deepen the Single Market for financial services and improve cross-border investment, particularly for smaller and less developed CEE capital markets.

• 5 November - European Parliament JURI Committee: MEPs will discuss the Better Law-Making report, focusing on regulatory fitness, subsidiarity and proportionality. The debate will address concerns over national gold-plating and the use of delegated and implementing acts, with implications for regulatory predictability and compliance costs across the EU.

• 6 November - EU Financial Services Committee: The Financial Services Committee is scheduled to discuss tokenisation in financial services, supervisory priorities, regulatory simplification, financial literacy and the results of the MiCA public consultation.

Building products, entering foreign markets and keeping more of the value they create: these ambitions will guide the second CEE Perspective Academy Conference, taking place on 4 November 2026 at the Prague University of Economics and Business. Under the theme “From CEE supplier to international competitor,” entrepreneurs, policymakers, financial experts, academics and students will examine how companies from the region can turn their expertise into an international business built around their own products and brands.

International expansion involves difficult choices, and the afternoon’s discussions will address them directly. Keynotes, an entrepreneur’s account of entering a foreign market and a panel on financing and managing expansion will explore market selection, local partnerships and the risks of doing business abroad. Students will then take on those decisions themselves in a practical market-entry exercise, before the launch of the CEE Perspective Student Challenge 2027. We look forward to welcoming you to Prague.

• Commission examines implementation of MiCA and DORA: On 27 October, Commissioner Maria Luís Albuquerque held an implementation dialogue on digital finance, focusing on the practical implementation of MiCA and DORA. Discussions covered opportunities for regulatory simplification, proportionality and reducing compliance burdens for financial entities.

• Commission presents new framework for climate resilience: On 27 October, the European Commission presented its Framework for Climate Resilience, including a proposed Climate Resilience Law. The initiative seeks to improve climate-risk assessments, adaptation planning and preparedness across the EU. It also has implications for financing climate-resilient infrastructure and managing physical climate risks, particularly in CEE economies exposed to floods, droughts and other climate-related events.

• EU energy ministers discuss electricity costs and infrastructure investment: At the Energy Council meeting on 29 October, ministers discussed electricity network charges, energy security and the EU's post-2030 energy framework. Discussions also addressed how national energy and climate plans could be developed into investment roadmaps. These issues are particularly relevant for CEE countries facing substantial financing needs for electricity grids, interconnections and industrial modernisation.

• Commission withdraws long-standing Financial Transaction Tax proposal: On 29 October, the Commission's withdrawal of five pending financial-services and taxation proposals was published in the Official Journal, including the long-standing Financial Transaction Tax proposal. The move reflects the absence of sufficient Council support for the initiative and is relevant to wider discussions on investment costs, financial-sector taxation and capital-market integration.

• EU launches international initiative to promote nature credits: On 28 October, the European Commission announced the launch of the Friends of Credits for Nature and Biodiversity initiative at COP17. The initiative aims to strengthen international cooperation and promote nature credits as potential instruments for attracting private investment into biodiversity conservation and restoration. It could contribute to the development of new sustainable finance opportunities, although the market for nature credits remains at an early stage.