Is the Czech Republic closer to early elections?
Polish industry slows down
A situation in the Czech political landscape has become more confusing yesterday as Nečas (ODS) indicated that his cabinet will continue only if K. Peake and her supporters from dividing junior coalition party will be able to create a new parliamentary group (10 MPs needed). This could be a big challenge for Peak has secured only 6 MPs, plus herself. Meanwhile, ODS – the main ruling coalition – seem to prepare for early elections. This seems a bit strange as it si quite clear that collation party would all lose party heavily, if the early elections were held soon. Currently the polls show that the Social Democrats could win with 37% while the hard-line Communist party could be on the second place with almost 20% of votes. Clearly, Czech markets doe not bet on such a scenario and they remain in a wait-and-see mode. The next will be crucial in this story.
Meanwhile, figures on the March Polish industrial production surprised relatively significantly on the downside of expectations. Recall that the NBP said in an official statement after the last policy meeting that it might raise interest rates in May, “unless signs of considerable economic weakening in Poland appear and the outlook for inflation returning to the target improves”. As regards for central bankers’ reactions, Elzbieta Chojna-Duch said right after the release that a rate hike rate would be unjustified. However, Chojna-Duch is seen as the most dovish member of the NBP Monetary Policy Council (MPC). On the contrary, Chojna-Duch’s peer Jan Winiecki reiterated his view that interest rates were not high enough to bring inflation back to the target. Like comments of governor Belka, Winiecki did not provide much clues as he just said that he counted that the issue of raising rates would be considered at the next meeting (9th May). Still, the result of the March IP clearly scared off some investors who had bet on the rate hike as forward interest rates fell markedly (FRA 3x6 lost 6 basis points). For the time being, we maintain our forecast and we believe that the MPC will decide to increase interest rates by 25 basis points in May. However, we will watch closely the figure on retail sales for March which will be released next Wednesday.