Although risk-on climate reigned yesterday in global markets, helped by the positive decision of the German court, Forex and fixed-income markets have remained in a wait-and-see mode ahead today’s FOMC meeting. We (and about 2/3 of the analysts polled by Bloomberg) think the FOMC will ease its policy further. Regarding the kind of monetary easing, we think that the FOMC will not only extend its forward looking guidance regarding the timing of the first rate hike towards the end of 2015 from the end of 2014 currently, but also enter an open- ended asset purchase programme. Most likely the Fed will buy Treasury paper and MBS-related agency paper. It will evaluate every meeting whether to continue, stop or suspend buying and for which amounts. Naturally, such monetary expansion should be positive basically for all assets trading in financial markets in Central Europe.
From regional perspective the focus will be on the August inflation figures. In our view the inflation fell to 3.8% y/y, while month-on-month prices were down by 0.2%. Notably the seasonally falling food and clothing prices should have a crucial impact on the decline in prices this time. By contrast, a moderate seasonal fall in fuel prices may not necessarily occur this time, given the significant increase in oil prices – transport prices were up by approximately 0.5%, according to our forecasts.
We believe that if the August inflation does not surprise to the upside, the NBP will probably match market expectations and it deliver a 25 bps rate on its interest-rate-setting meeting in October.