CE Forex and fixed-income markets were mostly calm yesterday. Some modest losses were seen in the Hungarian forex market, as the forint does not like news, which indicate that the government will probably increase its target for the 2013 budget deficit (to still modest 2.8% of GDP), while it is not willing to make concessions to the IMF/EU on several budget issues.
Like most of the market, we expect the MPC is going cut rates 25 bps to 4.5%. The dovish camp should strengthen in reaction to the latest round of pessimistic macro-data including much weaker PMIs. Furthermore the inflation is finally below 4% again and the zloty is near one year highs. Nevertheless we do not bet on start of pro-longed cutting cycle as inflation is still above NBP target and it is only few months from the last NBP hike.
We believe that the 25 bps has already been mostly priced in, so the NBP move should not be a big surprise both for the zloty and the fixed-income market. Nevertheless afternoon’s press conference of Governor Belka should be closely watched.