News
CZ: Neutral – Govt auctions CZK 6.196bn VAR/16 CZGB, bid/cover ratio – 2.51 / Govt approves new pension reform legislation (p2)
TK: Dovish – CBT leaves both policy Rate and RRR unchanged (p2)
Today’s Events
HU: HUF 5bn 2018 HUNGB and 12M t-bills auction / PL: POLGB buy-back auction / RO: ROMGB RON 500mn 2021 auction / SRB: RSD 5bn 3M t-bills auction / RU: Reserve assets as of 20 May
EEMEA Markets
The CBT kept the one week policy rate at 6.25%, as expected, and surprisingly did not touch the RRR rates on TRY and FX deposits: We think the MPC believes its monetary policy mix has started to restrain loan growth and domestic demand in 2Q11. As the CBT believes the measures are working and will be even more effective in 3Q11, we continue to expect no policy change during the summer months, although further fine tuning of RRR should not be ruled out after the elections (we believe the CBT will have to hike the policy rate by 50bp to 6.25% late in 2011). With upward revisions to the YE11 current account deficit (CAD)/GDP ratio of 8%-9% from last year’s 6.6% currently, market participants are not calling for a meaningful stabilization in CAD growth this year. Thus, the bank’s “wait and see” approach, looking for signs of the lagged effects of its unorthodox monetary policy mix at a time of rising CAD, is likely to unnerve the markets in the coming months. Despite this, it was interesting to see that that the TRY has marginally outperformed other currencies most notably the PLN where we saw some dovish comments yesterday. We believe this suggests already bearish TRY positioning and also that the market may cautiously start investing in the monetary tightening story in 2H.
Meanwhile we also see good value in participating at today’s ROMGB auction, as (i) the FX is now providing better entry levels and (ii) we believe the 10Y paper will see good demand from both local and international investors. With global growth being repriced duration exposure might again become fashionable whilst in the case of Romania the positioning is much heavier at the short end t-bills. We would expect the auction yield to be around 7.45%. For pure FX investors we would use the current weakness to add short positions with a target at 4.00 and stop at 4.180 levels. Our reading from NBR Governor Isarescu’s comments is that he suggested the bank is not strongly against RON appreciation but sudden moves might be prevented by the bank. This is nothing really new versus the previous activity of the NBR.
This afternoon (2pm) we will also hear about the final agreement between the Hungarian government and the banks. The base case is a 180 CHF/HUF fixing rate for FX mortgages for house purchase purposes. As we highlighted in our recent article (Hungary’s FX loan conversion: a workable solution) we think the direct FX impact of just this could be neutral whilst the cost is roughly around HUF 30-40bn. We will look for signs regarding a broader agreement too.
Click here to read the full report:
http://www.easyforexnews.net/wp-content/uploads/2011/06/eed_fi_250511_0000.pdf
Guldem Atabay / Gyula Toth
UniCredit Research