On Monday, due to U.S. holidays, trading was weak. The Czech koruna and the Hungarian forint registered some gains. Investors in Hungary concentrate on two principal issues in these days – the next central bank governor and European Commission´s budget forecast. Hungary has been under the excessive deficit procedure since 2004. However, as the government lately reduced budget deficits significantly (though by debatable means), the Hungarian government hopes that the EDP can be closed. The corresponding decision should be made in Brussels later this week.
Regarding the next MNB governor, Mr. Matolcsy, the current economy minister, appears to be the top candidate. In any event, uncertainty over the central bank policy will not dissipate very soon, as the term of the acting governor Simor expires on March 3.
Unlike its CEE peers, the Polish zloty extended its losses on Monday. The zloty has been under pressure since a lower than expected January inflation published last Friday. Low inflation revitalized expectations of yet another rate cut. Today, market focus will be on industrial production. Our main scenario of bottoming-out in industry along with Friday’s court decision allowing Jan Winiecki to stay in his office on the NBP board argues in favour of no more rate cuts. Nevertheless the recent inflation decline has definitely strengthened position of the doves in the Monetary Policy Board and if the industrial production does not surprise on the upside (market expects a 3% decline) we cannot rule out one or more rate cuts to be delivered.