KBC Market Research Desk
KBC Bank
A bold action taken by the ECB yesterday impacted Central European assets. The regional currencies as well as government bonds strengthened significantly after the “QE announcement”; the forint extended its previous gains against the euro and appreciated to a five-week high while the zloty hit the same mark in today´s early trading. The koruna, traditionally lagging behind its peers, firmed by about 0.5 %.
Although the overall impact of the ECB´s QE on the regional economies should be positive (owing to rising asset prices and stronger recovery of foreign demand), it also raises odds for additional monetary policy easing in the short term, particularly in Poland and Hungary. Although we expect no cut in Poland in February (recent market turmoil and fears of depreciation of the zloty against the Swiss franc should convince central bankers to leave interest rates untouched), we still bet on rate cuts delivered later on; a 25 bps rate cut could come as soon as in March. Regarding Hungary, where the market started to re-price the rate cut expectations, a 10 bps rate cut is already priced in for 2 months, while within 6 months a 20-30 bps cut is expected.
Let us recall that the Hungarian central bank has been in a more convenient position regarding additional policy easing than its Polish peer due to the fact that the share of loans denominated in Swiss francs already declined sharply (it amounts currently to “only” about 1-2 % of GDP). In Poland, the government can get under growing pressure to “solve” the issue of CHF housing loans because of approaching parliamentary elections (to be held in October this year).
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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