Czech markets resume trading after a two-day national holiday. Concerning the Czech koruna, traders might be satisfied with an outcome of the May foreign trade, which finished in CZK 14.4bn surplus. Both imports and surprisingly exports showed very strong growth, which suggests that tomorrow’s release of the May industrial output might be strong too. Hence, it seems that the Czech export-driven industry is still doing quite well supported by strong performance of the German economy.
The Hungarian forint has been trading in the tight range of 263.50-267.00 in recent days as neither domestic nor foreign news was able to set up a new trend. Industrial output weakened in May and dropped by 0.8% during the month. The year-on-year figure was 7.6%, up from 7.1% in April, but if adjusted for working days it showed a mere 2.6% growth rate. This is quite slow and may undermine the government’s forecast for 3.1% growth for this year. The statistical office said that the slowdown of exports at some large companies producing electrical equipments was behind the slowdown, which could mean a temporary setback if it is related to changes in the production chain.
The Polish central bank kept interest rates unchanged as both we and the market expected. The central bank wants to asses the impact of three consecutive hikes from the beginning of the year. According to central bank governor Belka the tightening is already having positive impact and hikes are making their way through economy. Although inflation continued to rise to a 10-year high last month, inflation expectations have somewhat stabilized. Also the bank projection now counts with weaker growth (3-4.9% y/y; our estimate is 4.4% y/y). Further details of new projection, which also counts for higher inflation in 2011, should be released on Monday.
On the other hand governor Belka signaled that another rate increase is definitely not off the cards and said that current market expectations are not far from what the feeling on the board is. That is approximately one more interest rate hike in 2011 after the summer break. That is also what we expect. As the market wasn’t surprised neither by the decision nor by the comments the reaction was pretty calm. The zloty stays flat in range-bound trading around 3.95 EUR/PLN.