Central European FX markets have not seen major fluctuations since mid-May. The Polish zloty together with the Hungarian forint follow a weakening trend, while the Czech koruna plays the role of a safe haven. Yesterday´s trading has confirmed this basic pattern. With missing regional stimuli, the forint eased and shortly even broke through the technical barrier of 300 EUR/HUF. Also the zloty went north, nevertheless it failed to reach 4.30 EUR/PLN, the level at which the NBP had intervened last Friday. In contrast, the Czech koruna went in the opposite direction and strengthened by 0.4%. The weakening of the zloty and the forint was driven by money outflows from the respective bond markets. Taking into account falling U.S. bond prices, it is not surprising that riskier assets have got under pressure as well. Yields of the 10-year Polish government bond rose by 9 bps while in Hungary, while yields of its counterpart jumped up by full 45 bps. The Government debt Agency in Budapest had to reduce the amount of 3-month discount Treasury bills offered in the auction yesterday by 10bn HUF to sell bills only for 40bn HUF as the demand was low. The average yield was nearly 20 bps
higher than a week ago.
Growing bond yields do not reflect any upcoming changes in the prevailing lowinflation environment. Like in Hungary, also in Poland energy prices are set to drop. The Polish energy regulator passed a proposal demanding local utilities to cut electricity prices for households by 3.9-4.6 % effective from July. In Hungary, energy prices were administratively slashed by 10% in January with estimated impact on inflation close to 0.2%. We believe that the Polish inflation may bottom out at 0.5-0.6 %y/y and remain near its lows throughout this summer. We cut therefore our overall inflation outlook for Poland to 1.3% y/y in 2013.