- NBP sounds less dovish while it is watching the zloty exchange rate
- Poor result of Czech government bond auction
Yesterday, the regional eye-catcher was the NBP interest rate setting meeting. As expected the NBP left its base rate on hold, but the MPC sounded clearly less dovish than the market was anticipated. Although the MPC stressed that GDP growth could be curbed by slower domestic GDP growth it also warned that inflationary threat could become the (weaker) exchange rate if global financial market conditions deteriorate further. Our conclusion based on yesterday’s NBP comments is that the official rate will stay on hold for the rest of the year, while if there is no global turmoil, the NBP will start to ease its policy at the beginning of 2012.
The other interesting regional event was an auction of a Czech government bond benchmark with maturity in 2024. The outcome of the auction was quite poor as the demand reached just CZK 6.3bn, while the MinFin was ready to offer CZK 6.8bn. In our view, the poor result of the auction might reflect three things. First, very low yields on the secondary market, secondly some risk might pose the issuance calendar for the rest of the year and last but not least some uncertainty might pose a development of the Czech fiscal situation as the economy is going to face more challenging times.