The Czech crown was trading below the 200 days moving average on Monday, while the Czech yield curve was only little changed. Main message brought CNB’s governor Singer who said that the central bank might decide to raise interest rates earlier than suggested by the latest forecast (by the end of 2011). Nevertheless, he said that such a decision would be based on higher demand pressures and would not be driven by the higher VAT. We agree with Singer, while we add that there could be another motivation for an earlier hike: a weaker koruna.
Technically speaking, the koruna is currently trading between 55 days (24.36 EUR/CZK) and 200 days (24.55 EUR/CZK) average. Nonetheless, we think that the EUR/CZK currency pair might return to nearly five month highs at 24.665 EUR/CZK. Regarding the other domestic news, the FinMin’s release of the emission plan (Wednesday) for Q3/2011 will be watched closely.
Hungary - Investment drop slows in the first quarter
The Hungarian forint opened stronger on Tuesday as risk appetite gained momentum on the back of more positive equity markets performance and a weaker dollar. The forint appreciated to 266.50 after breaking through the key 268.00 level during the night.
The Statistical Office released first quarter investment figures, which showed -1.1% Y/Y change after -7.8% Y/Y figure at the end of last year. On a seasonally-adjusted Q/Q basis, investment volume rose by 1.7% suggesting that investments may increase this year. Manufacturing investment is running ahead with a 38.4% Y/Y growth rate as probably car manufacturers are building new factories or expanding existing ones. Overall, first quarter investment data are slightly positive for the outlook.
Polish GDP expanded an annual 4.4%
The Polish zloty posted modest losses during a thin trading session on Monday; the EUR/PLN currency pair was trading between 3.97 EUR/PLN and 3.98 EUR/PLN.
Voting results of April’s Monetary Policy Council meeting were released yesterday. The report confirmed increased hawkishness of the Council as it showed that the MPC voted 9:1 in favor of higher interest rates. Even fairly moderate bankers, who, together with Governor Belka, advocated a more cautious approach, are changing the tenor of their statements now. Hence we do not rule out another hike at the next meeting, scheduled for June, followed by a rate hike during the summer.
Regarding today’s calendar, the figure on Q1/2011 GDP is released. We believe that data for the first quarter of this year confirm the good condition of the Polish economy. The economy grew by 4.4% y/y, in line with our forecasts. Economic output was driven by recovering investments, which rose an annual 6%. Private consumption increased 3.9% and domestic demand grew 4.5%.