On Thursday, the ECB president Draghi opened the door for ECB bond buying. Such news was long awaited and markets have appreciated the fact it finally came. Central European markets were no exception - currencies firmed and regional bonds posted some minor gains, too.
The forint led gains and strengthened by 1.5 percent as Hungary’s chief IMF/EU negotiator Varga somehow softened previous comments of Prime Minister Orban. He said the government might review a transaction tax law (which should take effect as of 2013) which is, at the time being, probably the main obstacle in receiving a new stand-by loan. As we already noted, we expect that negotiations between the government and international lenders might continue for months rather than weeks. However, we expect that the deal on the loan is very likely.
In Poland, the statistical office released data on unemployment and retail sales for June. Both fell short of expectations - in the case of the latter, it was a surprise because of the negligible impact of the EURO (recall that prices of restaurants and hotels also grew less than expected in June). In broader terms, however, figures confirmed a slowdown in economic activity in Poland. We expect the economy to
expand by slightly less than 3 percent this year (recall that GDP grew by 4.3 percent last year).
Regarding the outlook, we believe that yesterday’s Draghi’s comments will play in favour of CE currencies in sessions ahead. There is still a lot of event risk, but as long as Draghi’s commitment is not watered down, it should be a short-term positive.