CEE Macroeconomic and Fixed Income Research

Analysts’ View:

CZ Rates: As was broadly expected, the Czech National Bank decided at yesterday's meeting to keep the montary conditions unchanged (two-week repo rate at 0.05%, EURCZK guarded above 27). Given the recent EURCZK slide closer to the 27.20 level, CNB Governor Singer repeatedly emphasized that the central bank is technically prepared to come up with a decrease in key interest rates into negative territory (in our view, the probability that the CNB would in fact implement such a measure remains fairly low). In a reaction to an unexpected uptick in CPI in recent months (0.7% in May), the CNB newly sees the risks for its CPI forecast (0.1% in 2015) as balanced instead of antiinflationary. However, as our new forecast suggests that the increase in Czech CPI will be more pronounced in 2015 (0.7%), the probability that the CNB will have to proceed with a further increase in the current EURCZK floor in the coming months seems negligible. As yesterday's meeting basically did not bring any brand new information, we maintain our forecast for the EURCZK at 27.50 at the end of 2015.

HU Rates: Yesterday, we took part in talks at the National Bank of Hungary (MNB). We asked whether the difference between the phrasing of the Hungarian and the English statements bear any significance (reported in our Short Note). According to Mr Dániel Palotai, executive director of the MNB, the MPC aimed to signal the looming end of the easing cycle. In our interpretation, the base interest rate will very likely be cut by 10bp to 1.4% in July. However, it remains an open question whether the Council carries on with the cycle in August. If the market sentiment remains accommodative and the macroeconomic (primarily the CPI inflation) outlook remaind favourable, the MPC might just keep on cutting the key rate in August and September. For the time being, we see the key rate bottoming out at 1.2% at end-3Q15 as our baseline, with the possibility of shutting the door earlier. The wording of the July statement will be crucial. Due to loose monetary conditions and the replacement of the monetary policy instrument from September onwards, we see the EURHUF reaching 313 by the end of this year.

RO Bonds: The increased liquidity allowed the MinFin to raise the planned amount of RON 300mn in a re-opened T-bond tender that has a residual maturity of less than two years. The average yield was 1.86%. On the local secondary market, long-term yields, in particular, continued to move down for the fifth trading session in a row, even though no progress between Greece and its financial creditors has been made so far. We see the 5-year T-bond yield at 3.1% for December 2015.