KZ: Neutral – Net international reserves of the central bank decreased by USD 1.4bn to USD 34.6bn in June (p2)
RO: Positive – May industrial new orders added 3%mom (p2)
Today’s Events
BG: May IP, May Retail trade / CZ: May Trade balance / ES: June CPI / HU: May IP, June Budget balance, HUF 5bn 2015 HUNGB auction, HUF 50bn 12M t-bill auction / PL: Exchange auction, Int Reserves/ RO: RON 500mn 2014 ROMGB auction / RU: 2Q Consumer confidence, Int reserves / SRB: Policy rate announcement, RSD 5bn 6M t-bill auction, June PPI
EEMEA Markets
Portugal’s rating cut to junk by Moody’s overnight did not significantly add to the general risk aversion mood that has dominated the CEE space since the beginning of the week, although we have seen some further position cutting across the board. With all major regional currencies losing against USD on the back of falling EURUSD, only a few EUR crosses weakened (PLN and RON), HUF regained positions by the end of the day, highlighting relative regional stability. The China rate increase, on the other hand had a more negative effect, underlining the still greater than expected uncertainty over global economic growth.
In Poland, the NBP left the rate unchanged – which was in line with market expectations. In the press release the MPC stated that the substantial monetary policy tightening implemented since the beginning of 2011 should enable inflation to return to the target in the medium term. Such a view is supported by the NBP’s July projection of inflation and GDP. In line with the July projection – under the assumption of constant NBP interest rates – there is a 50% probability of inflation running in the range of 3.7-4.4% in 2011 (vs 2.8-3.7% in the March projection), 2.1-3.4% in 2012 (vs 2.2-3.4%) and 1.8-3.4% in 2013 (vs 2.1-3.7%). In turn, with a 50% probability, the July projection sees annual GDP growth in the range of 3.0-4.9% in 2011 (3.3-5.1% in the March projection), 1.9-4.5% in 2012 (2.3-4.8%) and 1.5-4.3% in 2013 (1.7-4.4%). According to the MPC, inflation will be curbed in the medium term by a likely slowdown of economic growth, fiscal policy tightening, decline in public investment, and the effect of previous interest rate increases. Shortly after the release, MPC members signaled that they will not hurry with further increases in interest rates. We believe the MPC could remain on hold for a longer period (there is no meeting in August) whilst in the autumn the elections might be too close. NBP Governor Belka comments that the market pricing is in line with the MPC thinking also suggest that the next hike might only come closer to the year end. This outlook suggest that the EUR/PLN might remain in a range or 3.90/4.0 in the coming period.
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