Key repo rate
Monetary policy remains unchanged as 5 of 6 MPC members voted for stable rates while one raised hand for hiking rates by 25 bps. The most important message from the meeting is that the timing of monetary tightening is likely to be slightly postponed (from 1H to 2H 2011).
CNB also released a new set of its forecasts. GDP forecast for this year improved to 2.0% from 1.9% earlier. However, CNB surprised downgrading forecast for 2011 to 1.2% from 1.8%. The sole reason is expected impact of fiscal tightening. Our forecast (2.0%) as well as recently released FinMin forecast (also 2.0%) count with fiscal measures but still do not draw such a dim picture. However, CNB’s view can discourage MPC from hawkish stance and rate hikes early next year. CNB’s forecast explicitly stated that it is consistent with the beginning of the tightening cycle in 2H 2011. Market reacted to the bearish shift in the forecast by 8 bps drop in 1Y IRS.