KBC: The Hungarian forint strengthens ahead of the new spending reduction programme
Czech Republic
The Czech currency gained quite significantly and moved to the 24.37 EUR/CZK on Monday. This was mainly due to lower tensions on global markets. Slightly hawkish comments made by governor Singer played only minor role. He said that current re- cord low rates are unsustainable from a long term point of view. Nevertheless he added that inflationary pressures within the economy have been low so far and hence current monetary policy is appropriate for now. While such comments will hardly help the koruna, Singer’s comment is definitely good news for Czech bonds. We are somewhat hesitant to bet on further CZK gains under current global condi- tions, while today’s release of the Czech PMI has been mixed (the headline reading fell from February’s 60.5 to January’s 59.8). Today the CEE region may be nervous after flash euro zone CPI estimates just two days ahead of ECB meeting. Neverthe- less as the pair failed to break above 55-day moving average, it may be much easier for the koruna to withstand the inflow of negative news.
Hungary
The Hungarian forint appreciated to 270.00/€ just before the new spending reduc- tion program is revealed at 10.00CET. Unemployment benefits and drug subsidies have been reported as the two main elements, but the program may include new taxes on less healthy food products and other spending reduction measures, includ- ing administration costs. Markets have been generally optimistic about the upcoming measures and therefore market positioning has been quite bullish on Hungary both in the bond and foreign currency markets. This indicates however that it is increasingly difficult to surprise them positively, although this possibility cannot be ruled out. In the meantime, un- employment rose again at the end of the year and investment declined 7.8% Y/Y in the fourth quarter, which clearly shows that achieving the goals of the government program could be more difficult than thought. We expect a final rally on markets after the announcement followed by profit taking.
Poland
The Polish zloty posted modest gains on Monday and strengthened to 3.95 EUR/PLN. Hence, the pair broke below the 200 day moving average (3.98 EUR/PLN). Yesterday, Poland successfully sold 1.47 billion zlotys in 52-week treasury bills with average yield reaching 4.508%, i.e. about 20 bps higher yield than in a similar auction one month ago. According to the Polish Ministry of Finance, 30 percent of this year’s borrowing needs is already financed. Despite yesterday’s gains, we think that the zloty could be under pressure in the ses- sions ahead. We think that outcomes of both the National Bank of Poland and the ECB’s monetary policy meetings might support the common European currency.
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