Czech Republic
CNB cut rates by 50 bps, but surprisingly sees a bottom of the easing cycle
Hungary
Collapse in manufacturing triggers deep recession
Poland
Economy on track to zero growth...
The Week Ahead
Czech’s and Hungary’s figures show that recession in CE is on track
Overview
CE authorities try to find ways to curb depreciation
As generally expected, the Czech National Bank cut interest rates by 50 basis points. However, unexpectedly, it signalled that the bottom for official interest rates was drawing near. This statement was partly inspired by the behaviour of the exchange rate of the koruna, which has significantly weakened recently, thus creates low visibility for the inflation outlook – particularly should the economy recover faster than expected.
Unsurprisingly, the Polish and Hungarian central bankers were not pleased with the depreciation of the zloty and the forint either. In these countries, however, the effort to mitigate the depreciation of the local currencies was not so strongly exerted through comments on the interest rate outlook. While the MNB’s governor suggested that the central bank may have to stop cutting rates he also mentioned other means (unspecified instruments) at its disposal for reducing the volatility of the forint. At the same time, there are speculations that Polish authorities could use of forex interventions to slow currency depreciation.
Verbal interventions such as those of the Polish and Hungarian central bank mentioned look effective now, but it is a question whether they will work if the downward pressure lasts longer. From this point of view, the slightly more hawkish tenor of the Czech National Bank meeting might have an effect. In other words, the CNB perhaps showed the ultimate way its Polish and Hungarian counterparts could act, if the undesirable and unwarranted depreciation would continue.
