KBC Market Research Desk
KBC Bank
Although both Czech and Hungarian inflation in May surprised to the upside of expectations, the koruna barely moved while the forint slightly strengthened yesterday. The key difference between the two currencies is that the room for koruna’s appreciation is limited by the central bank’s commitment to keep the EUR/CZK rate above 27.0. Although Miroslav Singer, the CNB governor, said yesterday that he expected further improvement in labour market conditions (that should also lead to increases in real wages) during the months ahead, he also reiterated that the commitment not to abandon the intervention regime until at least the second half of 2016 would very likely remain unchanged.
Regarding the forint, overall good performance of the Hungarian economy and significantly stronger inflation figures may have made markets change the opinion regarding the floor for the Hungarian official rates. We think that the MNB could stop cutting the rates at 1.5%. In fact, short term interest rate derivatives (FRAs) indicating that markets bet on a more significant extension of the monetary policy easing cycle have recently waned (see the chart below)...
This non-exhaustive information is based on short-term forecasts for expected developments on the financial markets. KBC Bank cannot guarantee that these forecasts will materialize and cannot be held liable in any way for direct or consequential loss arising from any use of this document or its content. The document is not intended as personalized investment advice and does not constitute a recommendation to buy, sell or hold investments described herein. Although information has been obtained from and is based upon sources KBC believes to be reliable, KBC does not guarantee the accuracy of this information, which may be incomplete or condensed. All opinions and estimates constitute a KBC judgment as of the data of the report and are subject to change without notice.
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