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Central European Daily

CNB meeting in the focus this week

Mon, May 4 2009, 08:53 GMT
by KBC Market Research Desk

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Currencies: CEE currencies gain on positive equities
Fixed Income: CNB meeting in the focus this week

Hungary

The Hungarian forint has become relatively stable around EUR/HUF 286-287 and market participants show hardly any interest towards the currency. It seems that views about further depreciation have softened, while economists expect only slow appreciation in the second half of the year to around 280. This week will be quiet on local fundamental data, so the market could remain silent for now, which could help volatility to decline as option implied volatility levels are still very high in a historical context.

The Hungarian bond market has also become relaxed. Foreign investors’ bond holdings fell to a record low of Ft2,352 billion, which would normally be a negative sign, but given this year’s negative net supply of bonds, this may not be the case in 2009 The agency plans to offer only some 1/3rd of the maturing Ft1,500 billion bond stock, thus bond holders will not be able to renew their holdings this year. This will thus require domestic or foreign players to sell bonds throughout the year and the question is who will want to sell that many securities.

Czech Republic

On Friday the domestic markets were closed so the Czech koruna was traded only in off-shore markets, where it firmed slightly.

Today and during the remaining of the week, the koruna will be in a waiting mode ahead of Thursday’s central bank meeting. Reuters’ Poll shows that a slim majority of analysts favours a rate cut scenario, so the meeting will be very interesting this time. Let’s remind you that we believe that the CNB will stay on hold while one key argument for such a decision is the exchange rate, which has been much weaker than the CNB implicit estimate for this year (EUR/CZK 25.80).

The Czech bond market resumes trading today since it was closed on Friday like almost everywhere. The market will focus particularly on Thursday’s events – the CNB and ECB meetings. Interestingly, while the market does not price in any change of the Czech repo rate, a slim majority of analysts favours a rate cut scenario (we would prefer the CNB to stay on hold this time). In this respect, should a part of the market start to listen to analyst’s consensus, then the Czech (swap) yield curve might steepen a bit this week.

Poland

The Polish zloty gave up some of the gains on Thursday, but came back below 4.40 EUR/PLN on Friday. The main driver was the positive development on the core equity markets, which posted another weekly gain. The comments by hawkish rate setter Darius Fillar that the rates should stay stable at least untill June were widely ignored.

This week will be rather boring from the Polish point of view. Hence the sentiment on the global equity markets should be decisive for the zloty once again. If the current optimism prevails, the zloty may come as far as 4.21 EUR/PLN (strong technical barrier, 2008 high).

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Published on  Mon, May 4 2009, 09:01 GMT

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