Central European Daily

Regional bond yields have continued to fall as the market rally has continued. Recall that last week CEE bond markets were supported not only by unexpected ECB’s easing of its monetary policy, but as well as weaker US payrolls. However, apart from these factors, for instance Polish bond yields are currently pushed down by expectations of further monetary policy easing by the NBP. Yesterday, even traditionally most dovish member of RPP Elzbieta Chojna Duch said that the NBP should cut rate at its October meeting by even 50 basis points. No surprise that the Polish 10-year bond fell yesterday by 9 bps to a new record low 2.84 %. Today, the main regional statistical output – the Czech inflation – has been already released. Compared to the market consensus as well as our forecast the headline inflation pick up marginally. While in monthly terms consumer prices fell by 0.1%, which corresponds to the 0.6 % year-on-year growth. Weaker koruna probably affected inflation, mainly through prices of clothes and shoes and slow down also reduction of prices of electronic devices. It seems that the inflation finally rebound, nevertheless according to our view, the acceleration will be only gradual. Due to higher consumer tax on cigarettes, inflation should slightly exceed 1% at the end of this year.