KBC Market Research Desk
KBC Bank
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Polish inflation weighs on zloty…
…but makes bonds more attractive
Polish zloty has been hit by further decline in inflation. In February, consumer inflation in Poland fell to its 6-years low at 1.3%. At these levels, it is already below the lower border of the Central bank´s tolerance band. Furthermore, we believe that inflation can decline further in the upcoming moths, bottoming out at 1% around mid-2013.
Predictions like this do not provide support for the zloty. Although we do not expect immediate interest rate cuts as a NBP response to the price growth slowdown, bets on rate hikes in foreseeable future are falling sharply. Current expectations of one interest rate cut in one year horizon (in FRA market) may continue to be priced in the market for some time as inflation continues to decline in the upcoming months.
Falling inflation should play in favour of the Polish bonds. The current 10 year yield at 3.90% is already very low by historical standards. On the other hand, combined with extremely low inflation, Polish bonds still bear a very nice real yield. Having compared it with negative real yields offered at most major developed markets, investors will find Polish bonds still attractive.
In the Czech Republic, industrial output declined by 4.1% y/y in January as expected. While hard data continue to confirm a weak start this year, soft data including our Flash leading indicator and PMI promise improved economic performance in the second to third quarter of 2013.
This non-exhaustive information is based on short-term forecasts for expected developments on the financial markets. KBC Bank cannot guarantee that these forecasts will materialize and cannot be held liable in any way for direct or consequential loss arising from any use of this document or its content. The document is not intended as personalized investment advice and does not constitute a recommendation to buy, sell or hold investments described herein. Although information has been obtained from and is based upon sources KBC believes to be reliable, KBC does not guarantee the accuracy of this information, which may be incomplete or condensed. All opinions and estimates constitute a KBC judgment as of the data of the report and are subject to change without notice.
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