Worse-than-expected Polish industrial production released yesterday did not have significant negative impact on the zloty. March industrial output fell by 2.9 % y/y (markets expected a decline of 2.2 % y/y) and indicated that revival of the export orders might have been sort-lived and compensating for weak domestic demand only temporarily.
In contrast, forint’s reaction to new liquidity measures introduced by the Hungarian central bank was pronounced. NBH Governor Matolcsy said that he backed a proposal by the Hungarian Banking Association to constrain access of foreign credit institutions to central bank’s short-term interest bearing instruments by abandoning emissions of 2-week bills. The idea is to revert to the previous practice of offering banks solely 2-week deposits available to those keeping reserves with the NBH. This step should help the central bank improve its financial results. As a result, market demand for Hungarian bonds, T-bills or asset swap strengthened and yields declined primary on shorter maturities. Forint´s reaction was, on the contrary, negative, as investors unable to use the two-week facility have been attempting to find alternatives in different currencies. In addition, the NBH Governor added that the Bank has just launched a process of monetary policy changes, which made markets even more nervous.