CEE Macroeconomic and Fixed Income Research

Analysts’ View:

HU Rates & Fiscal: The MPC will cut the key rate by 15bp to 1.5% this afternoon. After the decision, the MNB will release the latest GDP and CPI inflation projection along with the statement of the meeting. We think the wording of the statement will be crucial as it will give guidance about the policy rate's future path. We also believe that the statement will indicate that the easing cycle may continue in July. However, if the MPC shuts the proverbial door, the strengthening of the forint against the euro is imminent. The Council will likely aim to get as close to the 1% rate level as possible in 2H15, only the Fed's rate hike can hinder this process. In a separate event, we took part in talks at the EconMin yesterday. The two present state secretaries, Mr Peter Beno Banai and Mr Gabor Orban stated that additional measures will not be carried out to meet the EcoFin's recommendations we reported about yesterday as Hungary will meet the 1.7%/GDP MTO in 2017, according to the latest Convergence Program. In addition, for the first time, the state secretaries acknowledged that Hungary has the possibility to issue FCY bonds since the country has EUR 5.5bn FX-redemptions in 2016. According to the state secretaries, Hungary will avoid EUR and USD markets and look for markets that are on line with the government’s „opening to East and South” policy.

TR Rates: The CBT will announce its rate decision at 13:00 CET and no change is expected for the fourth consecutive month. Although the TRY has lost 5.5% against the FX basket since the last meeting underperforming its peers by around 3.2%, we do not expect any change neither in the macroprudential tools nor in the interest rates as the CBT is likely to perceive some of the TRY’s weakness as temporary. The CBT also refrains from defending the TRY when there is no dollarization tendency in the deposits as has been the case recently. When the CBT discloses its statement, the focus should be on whether the CBT adjusts its rhetoric in line with the deterioration in the core inflation and in the inflation outlook. We recently revised our CPI forecast upwards to 7.7% for the year-end from the previous 6.8%.

RO Bonds: Yesterday, the MinFin re-opened a 7-year T-bond issue maturing April 2020 and raised RON 300mn, as planned. The average yield edged higher (3.04%) than at a similar tender held just one month ago (2.75%), as the mounting uncertainties over the Greek future may have prompted investors to bid higher. Investors bids totaled RON 927mn, which corresponded to a bidto- cover ratio of 3.1. For the time being, we stick to our 5-year ROMGB yield forecast for December 2015 at 3.1%.