Review

  • Yesterday, the Hungarian central bank decided to cut its key policy rate by 25bp, bringing it to 6.00%. The decision to cut is not overly surprising given the recent weaker macroeconomic data out of Hungary and the relatively strong forint. The statement following the rate decision in Hungary was relatively balanced and little changed compared to a month ago, clearly indicating that the MNB’s monetary council is keeping the door open for further rate cuts.

  • Hungarian retail sales in November fell 7.8% y/y, which was greater than October’s 7.5% y/y fall and more than the consensus forecast of -7.1% y/y. It is clear that the Hungarian economy remains very weak.

  • The Central Bank of Russia board member Alexei Simanovsky believes Russian banks' bad loans could rise to as high as 11% in H1 2010, a very hefty number. Loan loss provisions have wiped out a big proportion of banks' profits, but there is still more to come given that non-performing loans were "only" 5.0% at the beginning of 2009.


Preview

  • The main events in the EMEA region today are the Polish and South African rate decisions. It is expected that both central banks will keep their key policy rates on hold. In Poland the key policy rate is 3.5%, however, we would expect the Monetary Policy Council to change its rhetoric to a slightly more hawkish bias on the back of recent strong Polish data. In South Africa we expect the SARB’s statement to be fairly neutral suggesting that the monetary easing cycle is over, but at the same time the SARB is unlikely to signal that it will reverse monetary policy any time soon given the ongoing weakness in private consumption.


Trading Update

  • It was a rather quiet day in EMEA FX markets yesterday with the rouble weakening moderately, on the back of comments from Russian Central Bank deputy governor Ulyukaev suggesting that the rouble could weaken to 38 against the basket. The continued decline in oil prices also added to the negative sentiment. The RUB basket officially closed at 35.7374, which is over 30 kopecks higher than Friday's close.