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Central European Daily

Hungarian central bank cut rates by another 50 bps

Tue, Nov 24 2009, 09:35 GMT
by KBC Market Research Desk

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Headlines

Currencies: CEE currencies calm down on strong US housing data
Fixed Income: Hungarian central bank cut rates by another 50 bps

Hungary

The Hungarian forint continued to follow global equity market sentiment and the central bank’s 50bps rate cut to 6.50% did not change this pattern. The bank highlighted the better inflation outlook over the short-term, but also added that the government will likely miss this year’s budget deficit target by a small margin. The market did not care much about this event as the move was widely expected and further rate cuts have already been priced in. Instead, the positive US equity market opening lifted the forint to 267.50 by late afternoon, but negative performance of Asian markets triggered a correction to the 269.00 level. It seems that the market is balancing between risk aversion and carry play. Some fear that asset price bubbles may have built up in some markets and that this could hurt the carry-trade currencies, like the forint.

Poland

The Polish zloty gained on positive emerging market sentiment triggered by surprisingly strong US existing home sales. The pair moved to 4.12 EUR/PLN, but failed to get further. Nevertheless the emerging markets rally starts to look fragile. The downgrade of Mexico in the morning and the inability of the EUR/USD to break above 1.500 EUR/USD are warning signals. Further attention of the emerging markets and the zloty as well should be on US economic data as the domestic calendar is empty. Crucial domestic events including retail sales and NBP meeting are scheduled for tomorrow.

Czech Republic

The Czech forex market was calm at the beginning of the week. The EUR/CZK opened just above the 25.80 and it was unable to break below this level. As a result the koruna slightly underperformed the zloty and the forint yesterday. Today, while the domestic eco calendar is empty the foreign one is quite rich, so the Czech currency will rather watch core markets. In a short-run, the EUR/CZK 26.0 seems to be the obvious (psychological/technical) target.

As in the Czech forex market the activity in the Czech fixed-income market has remained soft too. Yields dipped, but just by around 1bp, which is a move hard to comment. We think that the yield curve now correctly does not expect any change in official rates in several months to come.

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Published on  Tue, Nov 24 2009, 09:46 GMT

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