CNB vice-governor Singer sees zero-growth in 2009

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Currencies: The CEE currencies took profit from the rebound of global equity markets
Fixed Income: CNB vice-governor Singer sees zero-growth in 2009

Currencies

The Hungarian forint followed the general emerging market sentiment improvement and rallied sharply from the levels of 285-287 to 280 this morning. The speech from the central bank governor confirmed expectations about further gradual lowering of the base rate with respect to the stability of local financial markets. This however did not matter much for the forint as it has been trading on the prospect of the global recession even though the governor also hinted that this year’s recession in Hungary could exceed the current consensus estimation for 2.5%.

The Czech koruna once again followed regional sentiment. Hence it calmed down and took profit from the rebound on global equity markets. Although it touched 27.50 EUR/CZK level, the volumes were quite low. This is not very promising, especially taken into account high volatility on the global markets and worsening domestic fundamentals. Hence we do not expect the Czech currency to extend its gains significantly in the near term and see the possibility to come back to the 28.00-28.20 EUR/CZK area.

On Wednesday, the zloty entered calmer waters after the recent selling wave. EUR/PLN dropped to the 4.32 area at the start of trading in Europe and hovered in a roughly 4.3050/4.3550 trading range for the remainder of the session. The net core inflation data (0.1% M/M and 2.8% Y/Y) were perfectly in line with expectations. So, global sentiment was the main driver for EUR/PLN trading. EUR/PLN closed the session in the 4.33 area. Today, the eco calendar is empty. So, global factors and the technical picture will guide EUR/PLN trading. Easing global market tensions might help the zloty to recoup some of the recent losses. However, the LT technical picture remains zloty negative as long as EUR/PLN stays above the 4.20 break-up/previous highs.

Fixed income

The Hungarian bond market had a good day as well and yields lowered by some 20bps across the curve. The lack of supply due to the cancellation of auctions is forcing yields down as domestic institutional demand has to buy at least some bonds in order to keep the maturity structure constant of their portfolio as contributions are flowing in, while foreign investors have also become more interested due to rate cut expectations.

Czech bonds weakened yesterday, when yields rose along the whole yield curve, but trading volumes were far below the average. More interesting was the statement of the vice governor of CNB Miroslav Singer, who said that Czech interest rates could be cut again next month as economic growth may stagnate this year, but a weak koruna may limit the room for further monetary policy easing. On the other hand Singer added that the current koruna levels posed no problem for the economy, and neither endangers the inflation target. We do not change our view and expect that CNB will cut rates by 50 basis points at its next meeting on February 5. There are no data scheduled for today. We believe that at least the short end of the yield curve might be pushed downwards by the expectations of further rate cuts.

Polish interest went up by 5 to 7 basis points across the curve, in corrective move on the recent rally. The very short end of the curve outperformed the longer maturities, keeping the steepening trend intact. The deputy Finance Minister announced that Poland intends to sell €1 billion of euro bonds in the first quarter of 2009 and the country may also place bonds in yen and Swiss franc in the first half of 2009.

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