CEE Macroeconomic and Fixed Income Research

Analysts’ View:

TR Macro: Despite the TRY’s recent sell-off, the CBT refrained from taking bold steps, rendering the TRY defenseless amidst the political and global uncertainties. The CBT did not opt for any interest rate hike. Regarding the non-interest rate tools, the CBT took a minor step by introducing a 50bps hike in the interest rate paid on banks’ TRY reserve requirements and a 50bps cut in the interest rates charged on its FX depo lending facility to banks as preannounced last week. These measures would not be very influential in curbing the TRY’s depreciation. The statement did not refer to any change in the CBT’s intention to implement a tighter monetary policy. Further TRY depreciation may lead to more concrete steps (such as an upper boundary hike) as was last experienced in January 2014. We maintain our 2.65 USD/TRY forecast for the year-end, which reflects our view that the current volatility could abate post-election.

PL Rates: MPC minutes (to be released this afternoon) should not bring any huge news that could have an impact on Polish markets. The end of the easing cycle seems pretty definite and has been supported by good macro data and reversal of deflationary pressures. Minutes will most likely reiterate the expectation of member for such a scenario. Domestic events, as well as global sentiment, favor a strong zloty. There are signs of uncertainty, however, most likely related to Greece, which negatively affected the PLN yesterday causing the zloty to lose value and triggering an increase of the long end of the government bond yield curve. We currently see the fair value of the zloty around 4.02 vs EUR with risks of slightly higher values and yields in 2H15 (10Y at 2.5%) once the interest rate hike starts to be fully priced in (which is not yet the case in our view).

Traders’ Comments:

CEE Fixed income: The highlight yesterday was the weakness in bunds where we saw 10Y move to 16bps from 10bps in a matter of few hours. The correction was a matter of time while it still remains to be seen if the longer term trend towards negative long end rates will persist. The move came following the subsequent increase of ELA for Greece by additional EUR 1.5 Billion by the ECB with Italian BTPs rallying. Flow in CEE corporate bonds was subdued with most clients awaiting a solution for Greece.