Czech Republic
The Czech crown surprisingly lagged behind the region. The pair moved to 24.20 EUR/CZK despite solid gains of equity markets and a weaker US dollar. Uncertainty ahead of tomorrows’ CNB meeting might be in place. Although we do not expect a change in rates, some players may be disappointed by the prevailing majority of dovish members on the board. That is why we do not believe the Czech koruna has enough power to test 24.00 EUR/CZK in the near term. Today the focus should be on the Fed and the subsequent reaction of EUR/USD, which has had a significant impact on the Czech koruna recently.
Concerning the Czech bond market, it waits for an auction of the 4Y government bond benchmark. We believe that the MinFin will easily sell the offered amount (CZK 8bn), though it seems that the Greek crisis reduced foreign appetite for Czech government bonds.
Hungary - May budget figures underpin targets
The Hungarian forint did not react much to the Greek confidence vote and the pair stayed broadly unchanged around 267.00. The Economic Ministry submitted the details of the budget in May. Risks on the revenue side amount to around Ft150-200bn in our view, which the government plans to counterbalance with spending cuts on Ministries. Value added and simplified corporate taxes are running behind targets as households have been saving more and consuming less this year. Overall, the key will be to see the 2012 deficit below 3% of GDP without one-off revenues. This will be published only later in September, thus markets could wait until that release.
Poland
The Polish zloty had a calm session on Tuesday. The EUR/PLN currency pair was oscillating around 3.98 EUR/PLN level.
Regarding yesterday’s events, deputy finance minister Dominik Radziwill said that the ministry has already met almost 3 of its borrowing needs this year. Radziwill added that the ministry might not issue either T-bills (more likely) or long-term papers for the rest of the year.
We believe that an uncertainty related to the situation in Greece and revisions of balance of payments (due to the end of June) prevent the zloty from posting some gains. Regarding the latter, if the mostly undervalued imports really prove to be responsible for the increase in the errors and omissions, this may lead to a fairly significant increase in the current account deficits and a reduction of the nominal GDP for the last 4-5 years. However, this would also worsen all ratio indicators in respect to GDP. That said, the amount of Poland’s public debt is another associated problem, as it might exceed the lawful limit of 55% of GDP as early as the end of 2010, if it were to be revised significantly. This would automatically trigger tough austerity measures in the 2012 budget.