NBH to continue in gradual easing cycle

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Polish macroeconomic figures nicely surprised

NBH to continue in gradual easing cycle

The zloty was supported by better-than-expected macro data yesterday. March industrial production growth (8.8% y/y) marked the strongest year-on-year expansion in four years, beating all forecasts. Moreover, the nominal retail sales growth of 3.3% and corresponding 6.6% real growth (let us recall that Polish economy has experienced a price decline over the past nine months) confirmed excellent prospects of the Polish economy. Yesterday’s data provided an additional support for NBP´s commitment to keep rates unchanged and thereby supported the zloty which surged to its strongest levels since June 2011.

While the zloty’s rally kept the Czech koruna calm, it supported the Hungarian forint which returned back below the EUR/HUF 300 level. The situation in Hungary is in many ways similar to that in Poland. The economy has been recovering, the prices are falling (although not as fast as in Poland, and unlikely in Poland the deflation eases) and real wages are growing. According to today’s Hungarian statistical office data the wages grew by 3.7 % y/y in March. The strengthening of the forint in deflationary environment of course matters for the central bank. Today, we will see how the NBH will deal with the issue of falling prices and growing economy. Due to the fact that the Hungarian base rate is still relatively high compared to the Euro-zone and as well as to its regional peers we believe that the NBH will continue in its gradual rate cut cycle. The most likely scenario is, according to our view, the 15 bps cut to the new all time low 1.8 %. Nevertheless we do not believe that such marginal cut might affect the attractiveness of Hungarian assets and the forint is likely to remain strong.