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Central European Weekly

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Central Bank is slowly getting out of the dovish mode

Mon, Oct 5 2009, 12:16 GMT
by KBC Market Research Desk

KBC Bank

Czech Republic

Dovish talk from the central bank becomes louder

Hungary

While S&P upgrades outlook for sovereign ratings, the C/A swings in surplus

Poland

Central Bank is slowly getting out of the dovish mode

The Week Ahead

Czech headline year-on-year inflation should slip into negative territory

Overview

Does Hungary Stop Being the ‘Sick Man’ of the Region?

Last week, Central Europe was dominated by news about Hungary, mostly positive news, which even provided the forint with stability when the other currencies of the region found themselves under downward pressure.

In addition to the anticipated rate cut carried out at the beginning of last week by the National Bank of Hungary (NBH), by 50 basis points again, Hungary delivered an unexpected current account surplus for the second quarter of the year, as well as an upgrade of the country’s rating outlook by S&P’s. Both the favourably developing balance of payments and the praise by the rating agency might be important news for foreign investors, because it tells them that Hungary, i.e., the forint in particular, may no longer be as vulnerable in times of global sell-off of risky assets as was the case in the past. 

This hypothesis may be tested as early as in the following days and weeks, when, after the series of unfavourable news from global markets (notably the United States), the discussion will be significantly stepped up as to whether risky asset markets will see a more pronounced negative correction. Should this be the case, we believe that the forint is likely to fare better than it did before.

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Published on  Mon, Oct 5 2009, 12:37 GMT