None of the CEE currencies performed well yesterday. While the Czech koruna got close to a technical barrier at 26.0 EUR/CZK because of negative regional sentiment, in Poland, a new macroeconomic forecast weighted on the zloty. The FinMin cut its 2013 real growth forecast to 1.5 % y/y (down from 2.2 %) and announced the 2012 general government deficit at 3.9 % of GDP, instead of 3.5 % estimated earlier. The most stifling atmosphere has been - as usual - in Hungary, where the forint tested a technical barrier at 300 EUR/HUF yesterday on concerns about new policy measures suggested by the NBH. On its today’s meeting, the NBH is expected to further relax its monetary policy via gradualist interest rate cuts. In line with market consensus, we anticipate a base rate cut of 25 basis points to be delivered today, moving the rate to its record low at 4.75 %.
However, the NBH will not confine its discussion on the base rate, but it should also touch the proposal by the Hungarian Banking Association to constrain access of foreign credit institutions to central bank’s short-term interest bearing instruments. Governor Matolcsy intends to reduce the amount of 2-week deposits offered in auctions from HUF 4500bn to HUF 3600bn. As a result of this maneuver, the operating result of the central bank should improve and Hungary should get closer to meeting one of its main priorities – to exit the EU’s excessive deficit procedure. Nevertheless it remains to be seen, whether the 2-week would actually drop in the planned extent, as excess liquidity in foreign hands can flow into to NBH via local banks. All in all, we believe that the forint remains under pressure and we do not exclude possibility of its break through a barrier at 300 EUR/HUF.
Today, after a worse than expected Germany’s PMI, the negative sentiment in the CEE region persists. The Czech koruna will probably test a technical barrier at 26.0 EUR/CZK and if it breaks through, the way will be clear to the next barrier at 26.11 EUR/CZK.