On Tuesday, Central European currencies loose some ground as risk aversion increased. The zloty and the forint led the losses and depreciated by about 0.8 percent.
Legal disputes between Hungary and the European Commission weighed on the forint. Today, the commission is going to decide if it continues in an infringement procedures against the country. Moreover, the commission announced yesterday it has adopted a recommendation under which Hungary will be asked to cut this years’ public finance deficit to the governments own target of 2.5 percent of GDP. Such a decision seems to be a bit odd on a backdrop of the situation in the euro zone...
Apart from the Hungarian issues, regional markets might focus on the results of meeting of the National Bank of Poland (NBP). We think that the NBP is unlikely to change rates. While the market still sees the chance of a rate cut within the next nine months as more likely, the latest development of economic indicators and central banker comments are fairly clear in signalling a possible rate hike rather than a rate cut. However, the exchange rate of the Polish zloty, which has strengthened by more than 6% against the euro since the beginning of the year, may calm the increasingly hawkish mood of the NBP. That said, the Monetary Policy Council may, perhaps, only be afraid of Polish households’ inflation expectations, which still stand quite high - at 5%.