NBP should not cut rates, but may sound dovish

Headlines

Hungarian forint hits yet another three-month low

NBP should not cut rates, but may sound dovish

On Tuesday, regional PMIs for June eventually had no significant impact on trading. The Hungarian forint continued to weaken anyway and hit yet-another three-month low against the euro. Apart from a dovish bias of Hungarian central bank, the European Commission warning could also have contributed to the forint’s weakening. European commission has warned that the country may again face excessive debt procedure early next year, if it does not proceed with the consolidation of public finances.

Today’s eye-catcher undoubtedly is the meeting of the National Bank of Poland. Even though the recently released macroeconomic statistics (retail, industry for May) lagged behind expectations and Poland’s inflation rate is likely to fall below zero during the summer, the National Bank of Poland should leave rates unchanged at its early July meeting. This meeting will be more interesting as it brings new inflation forecast with downwardly revised inflation forecast. The question still is the bank’s outlook for economic growth in the second quarter, notably in light of the latest statistics. Nevertheless, we still believe that the chances of a rate cut in July are small. If the bank eventually decides to cut interest rates, September meeting, when the GDP data for the second quarter is available, is far more likely timing. More details on a possible autumn rate cut, which we however still see as rather unlikely, will be hinted at in the new forecast, the accompanying comments from the NBP, and in the macroeconomic figures to be released during the summer.