The koruna has weakened this week without a significant impetus. External conditions were favorable, local events have not brought any negative news. There was some minor impact of the Hungarian rating downgrade, but we do not see it as the major influence behind the koruna´s weakening.
S&P downgraded Hungary´s sovereign rating to a junk grade BB+ because of a significant deterioration of policy credibility. The downgrade weighed on the forint, while the zloty and the koruna only felt a marginal to low influence. On the other hand, some support came from the central bank. The MNB raised interest rates by 50 bps, as expected, and indicated that further tightening may be needed.
The Czech central bank has left interest rates unchanged, as predicted. The bank said that risks for inflation are skewed slightly to the upside, which makes a rate hike more likely than a rate cut. However, the rates may still go either way, Governor Singer repeated. We see this as a support for our view that no change in rates is in the pipeline. The meeting was neutral for the koruna.
The new macro releases were, overall, supportive for the riskier assets. The German Ifo index, the US housing starts and the consumer confidence index all beat expectations. On the other hand, the US 3Q GDP was revised downward and information from the real estate sector was mixed.
The ECB allotted 489bn euros in 3-year loans to banks, an amount significantly surpassing expectations. The first reaction on this news was very positive, but the gains of the euro and the CE currencies were short-lived. The markets reversed due to doubts whether the banks will use the money on purchases.