Review 

  • Yesterday, the Hungarian central bank published Minutes from its last rate sitting meeting. The Minutes did not bring anything new and the majority of the Monetary Council members was in favour of monetary easing in “small steps”. The MNB also said that financial markets remain fragile. We note that the Minutes are from the last rate setting meeting before the latest sell-off in the forint. Concluding, the recent sell-off in the forint has probably made it clear to most of the Monetary Council members that the risks have increased. 

  • The new Romanian government with the designate Prime Minister Lucian Croitoru lost a no-confidence vote in the Romanian parliament on Wednesday. That is clearly bad news for Romania, as without effective government the chances of the country getting the next tranche of IMF aid are small. 


Preview 

  • Key event today will be the rate decision by the Czech central bank. The outcome of the CNB’s monetary setting meeting remains uncertain. Contrary to the consensus expectations, which see interest rates on hold, we expect the Czech central bank to deliver another 25bp rate cut. Our view is based on the prospect of deflation in the Czech Republic and the still very weak economy.

  • There are signs of rising tensions internally in the Latvian government ahead of today’s vote in parliament on the 2010 budget. Even though the five coalition parties in the government have a majority in parliament, we would not rule out an unpleasant surprise in connection with today’s vote. Furthermore, there is clearly a risk of a collapse in the government coalition in connection with the passing of the budget. 


Trading update 

  • The best performing currency among EMEA currencies on Wednesday was the South African rand, which was benefiting from surging gold prices. Also CEE currencies gained some ground on Wednesday morning but lost some gains after the rating agency Fitch downgraded Ireland, and the Romanian caretaker government lost the no-confidence vote on Wednesday afternoon. 

  • Hungarian rates dropped considerably after the Minutes were published. This is a bit puzzling as the recent sell-off in the forint clearly reduced the chances of a more sizeable reduction in interest rates going forward. 

  • Czech monetary meeting will be in the spotlight today. Rates might drop further ahead of the meeting given the possibility of a rate cut.