CEE Macroeconomic and Fixed Income Research

Analysts’ View:

PL Rates: We expect that MPC will leave policy rate flat at historically level of 1.5%. As recent economic development (solid growth at 3.6% y/y in 1Q15 and easing deflation at -1.1% y/y in April) have been in line with expectations, there are no arguments that could explain move on interest rates. Moreover, the zloty has weakened removing the pressure that inflation rate may stay negative for longer than is currently expected. We thus expect relatively quick decision. The press conference that follows in the afternoon is not going to bring any insights as far as interest rate outlook is concerned. Especially, the new inflation and growth outlook will be published in the following month. As there is little chance for any surprise we expect the rate decision to have limited impact on the markets (theyt are influenced by global sentiment), so EURPLN should remain around current levels of 4.12, though we see potential for appreciation of the zloty toward 4.06 by the end of the year.

HU Rates: The NBH introduced the three months deposit facility yesterday, which will become the key policy instrument. The two week deposit will remain the part of the central bank instruments, however quantity restriction will be imposed on it from 23 September. In the central bank expectation the amount of deposits at the facility will decline from HUF 5000-5500bn to HUF 1000bn by the end of 2015. From liquidity and transaction point of view 3 month treasury bills will be more attractive than the 3 month central bank deposit, hence a significant part of the central bank deposit will pass to the T-bill market which might result in decline of yields. It also means a lower interest rate differential for carry trades which might weaken the forint. Our bond yield and EURHUF forecasts are under revision.