While the Hungarian forint posted solid gains and the pair moved back below 290 EUR/HUF, the zloty and the koruna remained under pressure. The zloty could have reacted negatively to the comments of the Deputy Finance minister, who thinks the currency´s general appreciation is not desirable for the slowing economy. He also thinks the NBP should continue with further easing of monetary policy. We are of the same opinion, nevertheless we do not see so much space for interest rate cuts as is currently priced in the market. FRAs currently price 3-4 25bps cuts in 12 month horizon and we believe 1-2 cuts are realistic to expect. Our base scenario assumes the Polish economy could bottom out at the end of the 1Q 2013 as our leading indicator for the Polish economy (The Polish Flash) cautiously predicts.
Meanwhile the Czech vice Governor Vladimir Tomsik reiterated that FX interventions remain the best way to ease the policy further. Although one cannot exclude interventions, we continue to believe that the consensus on other than verbal interventions on the CNB board is going to be extremely difficult. Hence we believe in market interventions at levels below 24.50 EUR/CZK.