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CNB Bank Board narrowly voted for stable rates

Fri, Nov 6 2009, 09:30 GMT
by KBC Market Research Desk

KBC Bank

Headlines

Currencies: Koruna extends rally after CNB meeting and strong foreign trade data
Fixed Income: CNB Bank Board narrowly voted for stable rates

Czech Republic

It has never happened that the CNB governor was outvoted during Bank’s Board meeting twice in a row. Yesterday, it was the case, because there were only three votes, which were for rate and we can be sure that the vote of CNB governor was among them (like in September). Hence, the majority of the Bank Board ignored both suggestions of the new projection (for more see our flash) and opinion of two main persons in the Board, who had to verbally intervene against the strong Czech koruna. So, the CNB did nothing this time it effectively cleared the way for koruna’s gains. Actually, it has firmed strongly since the meeting – this morning supported also by very good September’s foreign trade. We think now the koruna might even extend its rally and it could reach levels, which were seen ahead of the verbal interventions (EUR/CZK 25.20).

Obviously, the rate decision was disappointing for the Czech fixed income market and especially FRA rates moved higher, but thus move could be more curbed by the stronger koruna.

Hungary

The Hungarian forint continued its recovery on Thursday as rising equities boosted the positive sentiment towards risky assets. This morning’s foreign trade data were better-than-expected at €486m, while consensus expected the surplus to be in the €200m-€300m range. It seems that the smaller surplus in the previous two months was more temporary as probably the refill of underground gas storage units pushed up import temporarily, while the economy is on sound footings to recover.

This surplus level predicts an annual balance of around €4bn, which is better than forecasted by the IMF program and could help the country to repay external debt at a faster pace.

The Hungarian fixed income market also cheered the further improvement of sentiment towards risky assets and Hungary. Yields lowered about 5bps across the curve, while the auction of 3-, 5- and 10-year papers attracted bids more than twice the offer. The 5y5y forward IRS spread also compressed back to 200bps and longerdated FRA tenors priced back 25bps more rate cuts to 6.00% instead of 6.25% for the bottom of the cycle.

Poland

Yesterday, the Polish zloty strengthened due to positive sentiment on global markets. No domestic data were released, however, a successful sale of Poland's Samurai bond worth 45B yen (493 million USD) also supported the currency. On the contrary NBP governor Mr. Skrzypek comments that Poland could join the ERM2 system after reducing its budget deficit played no role.

Today the zloty may enjoy good mood in the region at the beginning, which could be also encouraged by the Czech koruna. Nevertheless, the US payrolls report this afternoon might be challenging for the zloty.

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Published on  Fri, Nov 6 2009, 09:40 GMT