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Strong Swiss frank put forint under pressure, no Czech Eurobond issue in 2011

Strong Swiss frank put forint under pressure, no Czech Eurobond issue in 2011

2.9.2011 10:57

Risk aversion strengthened on CEE markets ahead of the payroll data in the US today. Currencies weakened with the forint and the zloty losing about 1% against the euro, while bond markets were mixed. The situation in Hungary is the riskiest in our view due to its large Swiss franc debt amounting to 16% of GDP. Its growth rate is also fully depending on external demand, which has been hit by the slowdown on developed markets, thus the risk of a slower growth rate is also the highest here. The only good thing is the government’s strong commitment to lower the budget deficit level to 2.5% of GDP in 2012, which is sufficient to lower the public debt further unless growth slows down to 1% or lower. The market has priced in recently some 25bps of rate reduction for the next 6-months in Hungary, which may not happen if the forint continues to weaken below the key 275.00 level. The renewed CHF strength is putting the forint under pressure again. On this basis we think that the HUF is the riskiest currency in the region and Hungarian bonds are also vulnerable to the risk of a deeper global slowdown.

On the data front, Czech Republic posted a weaker-than-expected fall of retail sales to -1.7% Y/Y. Lack of domestic demand side pressure on inflation means that probability of a rate hike has become very low and the base rate could be maintained at 0.75% for several months.

The Czech Finance Ministry also released its bond issuance plan for the last quarter of the year. It indicated CZK50bn domestic bond supply, which probably implies no eurobond issuance if the budget fulfillls its original targets. This is different from recent official comments, which indicated that it might come in two months


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