CEE currencies posted solid gains over the week. The hopes ahead of ECB meeting and EU summit (scheduled for the end of this week) played in favour of risky assets. The Hungarian forint gained nearly 3%, the Czech koruna over 2% and the zloty over 1%. Nevertheless the relief could easily turn back to despair, if this weeks summit disappoints.
Beside euro-crisis watch, there are some interesting macro-figures in the Czech Republic and the NBP meeting in Poland. We expect the NBP to leave interest rate unchanged. Although the Polish economy grew at a reasonable pace in the third quarter, the development of the leading indicators (most recently the PMI) is disconcerting. Likewise, the labour market, with its decelerating creation of new jobs, is not developing very well either. If the Polish economy were currently not way above its inflation target and were not troubled by the weak zloty, it would nearly be high time to consider a monetary easing. However, given the above developments, the NBP can do nothing but leave rates unchanged.
The case is pretty similar also for the Czech economy. Declining economic activity together may argue in favour of interest rate cut, even from current very low levels. Nevertheless the weakness of the Czech koruna should prevent it from doing so. Also the inflation is currently above the most recent forecast and is set to further accelerate in November according to the data set to be released this week.