CEE Macroeconomic and Fixed Income Research

Analysts’ View:

PL Rates: The rumor that Marek Belka may leave the MPC because of Andrzej Duda’s victory at the presidential elections last weekend was explicitly denied by the central bank in an official statement. The NBP signaled that the governor plans to serve his term. Chojna-Duch, a rate-setter in the NBP, commented that she cannot imagine a different scenario than Belka staying.
The fact that the MPC’s term ends in more or less half a year (most of the members’ term ends in January, and Belka’s in June) supports the stability of rates in our view. As the macroeconomic situation has not changed much, there are little reasons to speculate on a monetary policy rate move in any direction. Our baseline assumes that the policy interest rate will remain flat until 2H16. We expect the EURPLN to decline toward 4.04 until the end of the year as current levels - above 4.10 vs. EUR - seem to be transitory fueled by uncertainty about Greece and policymaking in Poland as the probability that Law and Justice could win the parliamentary elections in October has increased.

HU Rates: MNB Executive Director Marton Nagy said yesterday that the MNB will probably start to phase out its Funding for Growth Scheme (FGS) from 2016 onwards. Nagy, who spoke to members of the Hungarian Franchise Association, added that given that the funding is now in the system for two years, if it remains there for too long, then banks can “get hooked on it”, so the central bank should now start to address this side-effect. The FGS was introduced in 2013 to provide funding for commercial banks at 0 percent interest rate for lending to small- or medium-sized companies at no more than 2.5 percent. Although the program could partially compensate for the drop of corporate lending, the banking sector did not boost lending from its own sources, Nagy added. In our view, the reduction of the bank tax and the improving economic environment could help to boost lending without the central bank program on the longer run. Furthermore, the low policy interest rate (which was cut to 1.65% in the last few years) should also contribute to this process. We expect 2.5% GDP growth for this year (with upside risks), and 2.1% for 2016. The NBH may cut the policy rate to 1.5% by the end of June. Our EURHUF forecast is 305 at the end of 2015.