On Thursday the zloty and the koruna relieved after several sessions of heavy losses. EUR/CZK failed to break back above 25.00 and the EUR/PLN above 4.15, though. Anna Zielinska-Glebocka – a swing vote on the NBP board – suggested that interest rate cuts were appropriate given current state of the Polish economy. At the same time she rejected calls for an extensive easing as she is concerned with global inflationary impact of the current Fed and ECB policies. She also said that the MPC was split on timing of interest rate cut. Although we believe the NBP delivers an interest rate cut as early as in October, we do not see much scope for further easing. Consequently, we do not consider market expectations pricing 4 cuts in the nine month horizon realistic.
The Hungarian parliament prepares for a key vote on the 2013 budget bill, which might determine whether a new stand-by loan from the IMF will be reached soon or not. The Parliament postponed discussion of amendments to the next year's budget bill to the next week to provide room for modifications pleasing the IMF and the EU. However, the minister in charge of the IMF/EU talks, Mihály Varga, did not propose additional austerity measures and called on the EU/IMF to make some concessions also on their side.
It seems that the market is either ready for a positive outcome of negotiations (with the IMF) or it is convinced that the country is able to cover its financing needs from domestic sources. The Hungarian sovereign risk premium hovers around one-year lows.