Central European currencies reversed some of the initial losses as European Commission President Jose Manuel Barroso said he would soon present options for the introduction of euro area bonds.
Even so, the Polish zloty touched the weakest levels in 26-months (4.41 EUR/PLN). It is rather surprising to us that we do not see more significant interventions of Polish BGK bank – the state bank that administers funds from EU budget and Eurobond emissions. Although the bank intervened last week, it has not been visible since that time. Beside that, central bankers are becoming more concerned about the weaker zloty. Rather moderate members of the board Adam Glapinski and Zita Gilowska argued against interest rate cuts and Glapinski even saw some chance of interest rate hike to cool down elevated inflation expectations. These are currently at 4.2%, significantly above the upper band of NBP toleration zone (3.5%).
The sentiment on the Czech market continues to be different. The Czech koruna, despite some recent weakness, continues to be rather stable and the rate of inflation is still below CNB forecast. That is why Czech central bankers have turned to be more dovish. Even rather hawkish Kamil Janacek now does not seem to be so convinced about the necessity of tighter monetary policy.