Moody's downgrades Russia sovereign debt to junk

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Moody's downgrades Russia sovereign debt to junk

Low oil prices weigh on Czech PPI

On Friday, the Czech koruna continued to wipe out its gains of Wednesday last week, when President Zeman had revealed his preferences regarding candidates he should appoint to the CNB board next year. Unlike the koruna, the Polish zloty and the Hungarian forint remained stable at the end of the last week, despite uncertainty surrounding culminating creditors´ negotiations with Greece. The Russian rouble experienced calm trading until Moody’s lowered Russian sovereign debt rating from Ba1 to Baa3 with negative outlook late on Friday. Moody’s stressed in its comments that the conflict in Ukraine, together with falling oil prices and significant weakening of the Russian rouble would have long-term adverse implications for Russia’s growth prospects. Although the downgrade by Moody’s was not a complete surprise (after all, Standard &Poor’s downgraded Russia to junk grade already at the end of January), the Russian currency started today’s trading with significant losses.

With respect to this week’s trading, the regional calendar looks quite boring. Today, fresh data showed the Czech PPI falling 1 % m/m and 3.5 % y/y in January. Oil had the strongest effect on the prices, but the same factor has had capacity to influence consumers as well as a majority of firms beneficially. Tomorrow, the next rate-setting meeting of the Hungarian central bank will attract most attention. We do not expect any rate change to be passed in Budapest but rather believe that the NBH will postpone the start of monetary easing cycle to its next meeting in March, when the stance of the Polish central bank will have been clear. Currently, the NBP is obviously divided with respect to the scope of its monetary easing. While central banker Bratkowski said today that a 50 bps rate cut would be appropriate, another member of MPC, Jan Winiecki, sees the existing policy rate of 2.0 % adequate. According to our view, the first option will gain the upper hand in the end and a 50 bps cut on March 4 is highly probable.

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