Central European Daily

A brave step made by the NBH, which cut its base rate more aggressively than markets expected on Tuesday, has proved to be damaging for the Hungarian forint. It seems that the 15bps rate cut (instead of 10bps), delivered at the time of generally fragile sentiment for emerging markets, triggered a forint sell-off. Particularly contagion coming from Turkey has been a threat for Central Europe and there especially for the high-yielding forint (the truth is though that the zloty has been under pressure this morning, too). We believe that, sooner or later, investors and speculative players start to differentiate between the Turkish economy with its high twin deficit and Central Europe (Hungary and Poland). Currently, high presence of non-residents in local bond markets may lead to short-term portfolio outflows and support temporary weakness of the forint and (partly) the zloty.