On Monday, Central European currencies weakened amidst relatively heavy selloff of risky assets. The zloty led losses – EUR/PLN currency pair rose by one percent and breached 4.20 level. On the other hand, the Czech koruna was virtually unchanged and the EUR/CZK pair remained only slightly above 55 days moving average (EUR/CZK 25.51).
Meanwhile, strong bets on rate cut have been built in Poland. As we already pointed out, we think that they are a bit too optimistic. Recall that the market currently prices in 25 bps rate cut in three months and three cuts in 9 months (spread between FRA 9x12 and three month Wibor is -87 basis points) which is, in our view, unlikely. We think that current slowdown of the Polish economy was, to a certain extent, expected. Moreover, despite some calls for lower rates, the hawkish mood still prevails among the members of the Monetary Policy Council.
Today, the regional eye-catcher is meeting of the National Bank of Hungary (NBP). The NBP is gearing up for a rate cut; however, we believe that the bank will wait until its autumn meeting before it actually cuts rates. Now the NBH is probably going to be cautious as first tough weeks of negotiations with the IMF could renew the weakness of Hungarian forint. Nevertheless, it is likely to be very close call, as doves appointed by pro-government Parliament are apparently strong.