CEE/CIS: We are still long PLN/CZK, but more cautiously

Wed, Apr 23 2008, 13:08 GMT
by Lars Christensen, Lars Rasmussen

Danske Bank A/S


Buy PLN/CZK

We have moved into the money with our long position in PLN/CZK as CZK has weakened somewhat against EUR after the sharp rise in CZK last Monday morning. Meanwhile PLN has stayed fairly flat- EM Strategy - CEE: Buy PLN/CZK, 14 April.

Long in PLN/CZK

We decided to lift our stop from 7.20 to 7.30 to limit the downside. Going forward we think that the strong momentum we have seen in PLN over the last month will fade a bit:

  • • Recent data for industrial production and retail sales have come out weaker than expected, suggesting that the slowing of the Polish economy is now underway, - Flash Comment - Poland: First signs of a slowdown?, 22 April.

  • • The polish central bank (NBP) has, as a consequence, softened its rhetoric in the last couple of days, and this has reduced the chances of another hike (to 6.0%) at next week’s Monetary Policy Council (RPP) meeting. We are still expecting a hike next week, but comments yesterday from Jan Czekaj – indicate that we are getting close to the end of the tightening cycle. Key to the outcome of next week’s RPP meeting will, however, also be the decision of governor Skrzypek.

  • • Going forward, we will most certainly remove our second rate hike from our forecast following the rate decision next week.

  • • Even though we are getting closer to the end of the Polish tightening cycle, it should be noted that the Czech tightening cycle already seems to have come to an end and the rate spread between Poland and the Czech Republic is therefore likely to remain positive. This should support our long position in PLN/CZK.

Long in RUB against basket

  • • Earlier today, we published a presentation on the need for tighter monetary policies in Russia. We expect to see a strong rouble against its dual currency basket (55% USD and 45% EUR) over the coming month(s) –- see Presentation - Russia: Monetary tightening is just around the corner

Published on  Wed, Apr 23 2008, 13:27 GMT

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