While Hungary’s delegation meets the IMF, the government is ready to change legislation

The Hungarian forint continued to recoup its previous losses as the market welcomed some softening of the government position ahead of the crucial talks with the IMF and EU officials. Recall that Hungary’s Foreign Minister János Martonyi sent a letter to his peers in 26 EU member states and the European Commission, which indicates that the government could be ready to change legislation should it be required by the European Commission. In a most promising sign (for Hungarian assets) Martonyi expectedly mentioned the most controversial new law of all, the Central Bank Act that raised concerns in the EU, the ECB and the IMF that said it can violate the central bank’s (NBH) independence. Today, apart from ongoing Hungarian/IMF discussions CE markets will watch an interest-rate setting meeting of the Polish central bank. Although the Polish economy grew at a reasonable pace in the third quarter (4.2% YoY), the development of the leading indicators is disconcerting. PMI for December showed further deterioration of market sentiment as both new orders and employment components overshadowed current output and the index fell further below 50 points and reached the lowest level since September 2009. We think that 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. Nevertheless, given above mentioned circumstances we believe that the NBP will keep interest rates unchanged for a longer period of time.