Both forex and partly bond markets have felt some negative spill over effects from the Greek contagion at the beginning of the week. A usual the biggest losses have been seen in Hungary, but it is not a big surprise as Hungarian assets recorded huge gains in previous two weeks.
Today, a regional eye-catcher will be an interest rate setting meeting of the National Bank of Poland (NBP). At its April meeting, the NBP somewhat surprisingly signalled that it might raise rates in May. The NBP is willing to raise rates unless signs of a significant economic deceleration occur and unless the outlook for the return of inflation to the target improves. From this point of view, the data released for the last month was mixed. We refer to the significant decline in the industrial output index and the deterioration of the business sentiment, with this stemming from the deteriorating external conditions and from the anticipated deceleration of domestic demand in the second half of the year. By contrast, the data on employment, inflation expectations, and retail sales was still reasonable. In addition, Poland is one of the few countries where accruals of loans are still positive (albeit the pace is also decelerating). In spite of the high degree of uncertainty, we believe that the NBP with not wait for the GDP data (to be released on May 31) and will raise its rate by 25 basis points at its May meeting; however, this is likely to be a one-off move, after which rates will remain stable.