- Zloty under pressure despite hawkish rhetoric coming from NBP
- Hungarian government buys back stake for €1.9B
The EUR/CZK pair stayed above 200-day moving average (24.55 EUR/CZK) in rather tighter range for most of the session. We continue to believe that the combination of negative interest rate differential (although somewhat narrowing recently) and worsening global risk appetite should play against the Czech currency. If the break through 200-day moving average is confirmed and the pair moves above March highs (24.59 EUR/CZK), next stop should be as high as 25.00 EUR/CZK.
Interestingly, CZK rates and yields are still under downward pressure. We believe that this trend will be reversed soon, if the koruna weakens further.
In Hungary, the government announced that it will buy back the 21.2% equity stake in from Russia’s Surgutneftegas company. The price has not yet been disclosed. At the current level, the price could have been around Ft517bn or €1.9bn. The source of funding is the unused part of the IMF’s loan that is currently held in deposits at the central bank. The IMF’s representative said that the government is free to use deposits.
The move however means that Hungary will no longer have the safety deposit at the central bank that could be used to rollover maturing external debt. It also means that Hungary will not be able to lower reserve deposits and repay government debt faster, which may weaken the credibility of the government’s fiscal consolidation commitment.
Overall, the decision left the Hungarian forint unchanged at the key 270.00 level. The pair seems to be in a wait-and-see mode where to go from here. Last week’s weakening trend seems to have exhausted, but renewed strength of the dollar and a weakening of other high-yielding currencies keeps the pair vulnerable to further weakness.
The Polish zloty posted modest losses on Tuesday. The EUR/PLN currency pair was hovering at 3.95 EUR/PLN level, just shy of 200 days moving average (3.955 EUR/PLN).
Adam Glapinski joined his colleagues from the Monetary Policy Council (MPC) and added few remarks yesterday. Glapinski said that the monetary tightening cycle should continue and that the only question was the pace of hikes. Glapinski also said he was not convinced that inflation would start falling in the second half of this year.
In light of recent comments, the situation in the MPC remains little bit clearer. Last Friday’s information (which has not been confirmed officially yet) that May’s voting ended 9:1 in favor of rate hike seems to be more and more believable. From the viewpoint of the zloty this could mean that the polish currency is now placed on a solid footing. Nevertheless, one should still bear in mind that the risk related to revision of balance of payments still hangs in the air.