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Decoupling of the zloty and the koruna might point carry-trades

Decoupling of the zloty and the koruna might point carry-trades

19.04.2011 10:53

The Czech koruna was surprisingly strong yesterday and came back below 24.20 EUR/CZK. It is interesting how the low-yielding koruna tends to go against overall sentiment in the region in some sessions. Yesterday the spike in global risk aversion could have triggered closing carry trades financed from the Czech koruna. Nevertheless the evidence of wider use of the koruna for the carry trade financing is still missing. From that point of view, upcoming months should be really interesting as we expect the NBP and ECB to tighten monetary policy further and CNB to stay on hold. The fact that the current coalition crisis is over and the government has decided to go on with fiscal reforms should not have any material impact on the koruna.

In this respect, it was interesting to hear CNB governor Singer yesterday, who confirmed that there are mixed signals (pro-inflationary and anti-inflationary) from the economy, which cancel each other. The governor also added that the CNB would not be influenced by the ECB policy unless it would change its outlook for inflation on the euro-zone.


Yesterday, the Hungarian parliament passed a new constitution for the country, ignoring protests and warnings. The Hungarian government was never in danger of losing the vote as the ruling Fidesz party holds a two-thirds majority in parliament. Nevertheless, the far-right Jobbik party voted against the act, while the Socialists and the green party LMP boycotted the vote.

The new constitution reflects a Christian-conservative set of values, discriminating those who don’t share such ideas. Besides that, the constitution undermines democratic political competition and makes political change more difficult as the ability to overrun rules in key areas such as taxation will require a two-thirds majority. Positive for markets however is the so-called ‘debt brake’ that will force the government to lower public debt from around 80% of GDP to below 50%.

Besides the new constitution, attention in Hungary was also on the central bank meeting. As expected, the Hungarian central bank decided (unanimously) to keep rates unchanged at 6.00%, ignoring the most recent upward surprise in CPI inflation. Afterwards, the governor Simor said that CPI inflation can fall towards 3% by the end of 2012. The statement left open which would be the next move on rates as they said that if new data suggest a greater pass-through from global cost shocks, it may be necessary to tighten policy, but a slower than expected recovery in bank lending to households and weaker than anticipated domestic demand may justify a reduction in rates.

The Hungarian forint weakened somewhat after the comments from the central bank. The EUR/HUF pair rose from 267 to 268.50, but reversed most yesterday’s gains this morning.


The Polish zloty weakened on Monday. The zloty was partially influenced by comments made by the Monetary Policy Council (MPC) member Adam Glapinski. He said that the MPC would make a serious mistake if it raised interest rates due to higher than expected March’s inflation. Glapinski also said he would not support a proposition on a rate hike if it occured. Hence, Glapinski shares the view of the central bank’s president Marek Belka who said earlier that the MPC considers not only the latest data when setting interest rates. Moreover, yesterday’s figures from the labor market surprised on the downside. Both average gross wages and employment for March grew less than expected indicating that demand pressures remain absent.

S&P’s revision of US credit outlook to negative pushed the EUR/PLN currency pair to 4 EUR/PLN level. We think that the zloty could erase losses in sessions ahead as it might draw strength from the continuing US earnings season.

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