Ukraine army ousts rebels from airbase

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Ukraine army ousts rebels from airbase

Polish inflation remains at 0.7 %

Although some kind of armed intervention against separatist militias in East Ukraine could be expected, fears of further conflict escalation and uncertainty surrounding Russia’s true stance triggered further sell-off in Hungarian and Polish markets. While the koruna barely moved, the zloty fell by about 0.2 % and the forint lost more than 0.5% vs. the euro. Also Hungarian stocks underperformed its peers. Unlike in major European countries, prices of Hungarian government bonds fell and the 10Y yield rose by 3 bps yesterday (or by 13 bps since last Tuesday). Still, we expect the Hungarian central bank to cut its key interest rate to 2.50 % unless the forint returns above EUR/HUF 315 in the next two weeks (the MNB meeting is scheduled for 29th April).

Meanwhile, the Polish statistical office released fresh inflation data (+0.7 % Y/Y in March), which were broadly consistent with general expectations. Regarding structure of the price growth, a small month-on-month decline in prices of food and non alcoholic beverages brought us the biggest surprise. It was for the first time since 2006 that prices in this category dropped in March on the monthly basis. All in all, Polish inflation, still deep below its target value, confirms that the NBP is in no hurry regarding future interest rates hikes, despite the fact that economic growth in the country has been picking up.

Although some interesting regional figures were released today – for example Czech PPI for March fell short of market expectations and indicated low inflation pressures to persist in coming months – the situation in Ukraine remains the eyecatcher. Yesterday’s trading supported our view that the forint is the most vulnerable among CE currencies (despite improving fundamentals of the Hungarian economy).