MNB on hold but silently ups its inflation forecast

Headlines

Currencies: NBP Wojtyna: chances on zloty entry into ERM2 before July 1 are waning
Fixed Income: MNB on hold but silently ups its inflation forecast

Due to technical reasons, there is no Hungarian part today.

Poland

The Polish zloty lost some ground at the start of the week, which might be partially due to some profit taking, while comments from MPC members were hardly supportive too. Recall that while MPC member Wasilewska-Trenkern warned that the government should stick to tight budget policy otherwise it would lose a chance to get support form the IMF flexible loan. The other interest-rate setter Slawinsky indicated that the NBP should remain in easing bias until the euro zone is on the recovery path. Negative sentiment againt the zloty will probably also stay in place today as another MPC member – Andrzej Wojtina said that he was not optimistic about zloty’s entry to the ERM2 before July 1. Let us remind you that should Poland adopt the euro in 2012, it must enter in to the ERM2 at latest in the second quarter of this year.

Czech Republic

Yesterday, the Czech koruna lost further ground, together with other CE currencies. However as we expected, carry trades, which were established in recent days on the PLN/CZK, led to the outperformance of the koruna, when the region was hit by selloff. So, the EUR/CZK pair now operates above the 27.0 level, which we think at least technically opens the door for more koruna’s losses.

The Czech yield curve strengthened in thin trading volumes on Monday. The Finance Minister declared that he expected this year’s deficit between 4% and 5% of GDP and it means that more bond issues could be expected. Also, Finance Minister Mr. Kalousek said he is very much counting on passage of a bill for removing the requirement for funds to use mark-to-market rules for bonds in their portfolio. If passed this could be very positive for the market, because pension funds will be more willing to buy bonds with long duration.

No fresh statistics are released today. The market could prepare for tomorrow’s auction of 5.0%/2019 bond in expected volume of CZK 7 bln. We suppose that interest in the auction might be sufficient, but might not reach the success of the previous auction.

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