CEE Macroeconomic and Fixed Income Research

Analysts’ View:

Looking Ahead in CEE This Week: The Hungarian and Turkish central banks will decide on rates on Tuesday. We expect rates to remain unchanged in both countries (2.1% in Hungary and 7.75% in Turkey). However, the Hungarian central bank might indicate potential for easing; in fact, we expect the first cut in March in Hungary after the release of the new inflation projection which is likely to show a much lower trajectory for CPI than the one released in December. On Friday, CEE countries will publish final GDP data, including the breakdown: the details of the mostly positive surprises will be unveiled.

HU Banks: According to State Secretary Orban of the Ministry for the National Economy, Parliament can pass the law regarding the bank tax reduction in April. The base of the tax would change to the total assets of banks seen in 2014, and the tax rate would be 0.31% in 2016 and 0.21% in 2017. This year, HUF 144 bn (about 0.5% of GDP) in revenue is expected from the bank tax and it would be reduced by roughly HUF 60 bn in 2016, according to the memorandum signed by the government and the EBRD. The reduction of the bank tax should not endanger the budget deficit, in our view. In addition, it would be a positive factor regarding the growth and credit rating outlook. An upgrade to investment grade may come at the earliest in 1Q16, in our opinion. Our bond and FX forecasts remain unaffected (HGB 10y yield at 2.67% & EURHUF at 313 by end 1Q15).

Traders’ Comments:

CEE Fixed income: The Greek attempt to reconcile creditor demands with election pledges will keep us on the edges of our seats today but Asian equity market moves and FX developments overnight point toward complacency amongst global investors. Recent polls appear to show an increase in the popularity for Syriza amongst voters in spite of the apparent U-turn in policy.
As such, the chances of a deal are indeed not bad at all even if it does just mean that the Eurozone will kick the proverbial can down the road once again. Yields on CEE government bonds went higher on Friday before the news of a breakthrough between the Eurozone and Greece hit the wires but should head lower again today. Yields on Bunds are already higher in pre-trading as the safe-haven bid recedes but not by much. Staying with politics for a bit, Fidesz lost a parliamentary by-election on Sunday which strips the ruling party in Hungary of its two-thirds majority but the HUF is only slightly weaker this morning with the focus on Tuesday’s MHB rate setting meeting. The HGB yield curve was steeper on Friday as expectations point toward a rate cut but it will be the Fed that really drives FX and bond markets going forwards. Janet Yellen is scheduled to speak in her semi-annual monetary policy testimony in front of the US Senate on Tuesday.