On Friday, the Czech koruna posted the largest gains since early February. Far better than expected German Ifo index for May triggered the gains. The koruna breached below the EUR/CZK 26.00 level easily and closed at EUR/CZK 25.90. We think, however, that koruna’s gains were overdone and the exchange rate will be prone to corrections. Let us recall that the Czech National Bank (CNB) still ponders selling the domestic currency and surprisingly severe contraction of the Czech economy in the first quarter of this year further strengthens the case for (at least verbal) interventions. Regarding the forint and the zloty, the former also strengthened on Friday while the latter closed barely changed, as a better Ifo in Germany was overshadowed by surprisingly weaker retail sales and higher
unemployment rate in Poland.
As far as the week ahead is concerned, a meeting of the National Bank of Hungary (on Tuesday) and a release of the Polish GDP growth structure for 2013 Q1 (on Wednesday) are the eye-catchers. As for Budapest, we expect that the central bankers will cut their key interest rate for the tenth consecutive time to a new alltime low of 4.5%. Regarding Warsaw, we expect an announcement of a slight
upward revision of the flash GDP estimate (from 0.4% to 0.5% Y/Y). Moreover, the GDP figure will deliver the last piece of puzzle to MPC members before their next meeting at the NBP. Recall that possible outcomes are varied: a 25 basis points (bps) cut, a 50 bps slash but also no change in interest rates at all. We continue to favour the first option: a 25 bps rate decrease at the next meeting (06/05)