Very poor Czech retail sales point to weak domestic demand

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Currencies: IMF says that a rise in Polish rates would not be warranted any time soon
Czech Republic: Very poor Czech retail sales point to weak domestic demand

Czech Republic

On Monday, the Czech koruna stayed in a narrow range around EUR/CZK 25.48 during the whole day. Lower February’s production prices eased the koruna only temporarily and early correction returned the koruna to its morning values. Today's release of the January retail sales reported a further decline confirming that higher unemployment made the Czech households to save and the domestic demand remains very weak. The poor retail sales seem another reminder that current economic recovery has not been satisfactory and therefore any bets on quick tightening of the monetary policy seems to be premature.

Hungary

Yesterday, the forint strengthened as the EUR/HUF currency pair closed at 265.20. The result might mirror last week’s more favorable domestic statistics. Domestic news that the key political party Fidesz, which is very likely to win the election next month, promises easing of austerity saving plans arranged with IMF has had no impact on the currency.

Today, there are no fresh local statistics. However, Hungarian currency previous gains are rather strong and a particular correction can not be excluded, but and outcome of the FOMC meeting might be important in this respect.

Poland

The Polish zloty eased slightly yesterday as the price action was cause by dovish comments form both an MPC member and the IMF together with lower-thanexpected readings. Recall that the February month-on-month inflation was just 0.2%, which implied the year-on-year CPI change below 3%.

Regarding the IMF, inflation is likely to remain around the mid-point of the band, suggesting that a rise in rates would not be warranted any time soon. While we do not see imminent inflation pressures, we think that the MPC will not wait too long to raise the official rate. That is why we believe that zloty’s (mid-term) future is bright. While the zloty, like other emerging markets’ currencies, will wait for the outcome of the FOMC meeting it will also watch a report on domestic wages and employment.

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