Czech Republic

Czech inflation beats a quick retreat


Hungary

Falling domestic demand could help to mitigate the effect on inflation of a weaker forint


Poland

MPC will wait with the cut for the Q4 GDP data and the inflation projection in February


Slovakia

ARDAL plans Eurobond issue in Q1 09


The Week Ahead

The Hungarian and Polish central bank are expected to stay on hold this month


Overview

NBP waits for a missing agreement on the euro entry

The upcoming week in Central Europe will be particularly interesting for Hungary and Poland, where meetings of their respective central banks will be held. Unlike the Czech Republic, where official interest rates are low and will continue to go down aggressively (see our new revised outlook for the CNB), we do not expect the NBH and the NBP to follow this example. However, the reasons why the NBH and NBP will not cut rates at their forthcoming meetings are quite different. The situation in Hungary is somewhat simpler: the central bank will come up with an Inflation Report, which is going to be more favourable in terms of inflation, but the economy, which ‘flirted’ with the currency and banking crisis and is currently under the guidance of the IMF, cannot afford a cut in official interest rates. On the contrary, the NBH will need to keep domestic interest rates high, to support the forint, and keep capital in the economy in these turbulent times. The Polish story is absolutely different. Poland’s macroeconomic situation, which is far better than that of Hungary, would strongly encourage the NBP to cut rates rapidly. Given the falling commodity prices and significantly decelerating domestic demand, Poland’s inflation outlook has also improved greatly, and inflation is very likely to fall back to the target value (2.5%) in 2009. Nonetheless, a limiting factor, which does not allow Poland’s Monetary Policy Council to start the cycle soon, is not only the weak local currency but particularly the fact that the central bank is not certain about the eventual date of accession to the Euro zone. January 2012, which implies meeting the inflation criterion in 2010, is still possible, and this means that the bank should maintain a tighter monetary policy rather than running the risk that the failure to comply with the criterion will eventually become an obstacle to quick accession to the Eurozone.