Polish June inflation came out more or less in line with our expectations. The year-on-year inflation further slowed to hit its all-time low at 0.2 percent. On the month-on-month basis, prices stagnated (we expected an 0.1 % decrease; the biggest surprise was the 0.4 % rise in transport prices).
Although inflation stays markedly below the level targeted by the central bank (2.5 percent with a tolerance band 1 percentage point wide in each direction) we do not expect the NBP to respond but rather to keep its key rate at the all-time low of 2.5%. We think that inflation hit its rock bottom in June. Nevertheless, the planned reduction of retail energy price might keep inflation below 0.5% y/y throughout
In Hungary, NBH governor Gyorgy Matolcsy, who is also a member of the IMF governing council, revealed that Hungary was planning to repay its IMF loans ahead of schedule and close the IMF office in Budapest. According to our view, the early repayment of IMF loans is purely political decision ahead next-year elections, since transition from IMF financing to market-based financing would be costly. Nevertheless it is worth adding that early repayment is not exceptional – Latvia repayed its loans to IMF ahead of schedule last year. Hungary has already repaid more than a half of its entire loan burden assumed in 2008-2009, which amounted to 14.3 bn EUR and the last redemption of which was originally planned for March 2014.