On Thursday, the Central European currencies took advantage of the euro’s gains and slightly strengthened. While the koruna remained in sight of EUR/CZK 25.20 level, the zloty and the forint both gained about 0.3 percent. Both the forint and Hungarian bonds have thus so far largely ignored the fact that the prospects of the IMF deal have been waning - the Hungarian Ministry of Finance told Reuters it planned to sell a foreign currency bond although it had said earlier that the prerequisite for the issuance would be the deal on another stand-by loan reached with the Fund and EC. As we already pointed out, Hungary’s foreign currency liquidity position is strong and the country, in our view, does not need further financial backstop.
The Polish GDP growth rate for Q3 2012 was significantly below market consensus at 1.4% y/y. The growth slowed from 2.3% in the second quarter to the lowest rate in three years. Even more disturbing, is the structure of the growth – the deterioration was caused by falling domestic demand (-0.7% y/y). Given the negative external demand outlook for Q4 2012 and Q1 2013, the worse is probably still to come. The figure should support the dovish camp on the board of the NBP. That is why we have decided to revise our base scenario and see additional three interest rate cuts in the 6 month horizon with a risk of even more pronounced monetary easing. The next cut should come as soon as in December. The zloty was under pressure after the release of GDP figures.