While the Czech koruna weakened due to low August inflation yesterday, the zloty extended its gains and also Polish government bond prices rose. However, prevailing optimism on Polish markets contrasts with uptight political situation.
Recently the government overtook markets by its decision to reshape the pension reform in a way that would lead to abrogation of the pension system established as early as in 1999 and considered to be a model for other countries in the region. Also yesterday, former Justice Minister Jaroslaw Gowin announced his decision to leave the Civic Platform, narrowing thereby ruling coalition’s majority to a single vote. Gowin quotes changes in the pension system among prominent reasons for his decision.
Regarding Hungary, the forint remained stable on Monday, nevertheless still above the 300 EUR/HUF, and we believe that the room for its further gains is limited. Upcoming elections press Prime Minister Orbán to use more populist rhetoric – such as the ultimatum given to banks on Friday to modify their FX loan contracts in favour of borrowers till November and bear then most of the cost.
The Bank association countered yesterday with declaration that it had made a proposal to the Economy Ministry on August 27 based on proportional sharing of the costs by the banks and the state.
Beyond monitoring local political situation, markets are also waiting for the Fed meeting next week, which should signal if the monetary easing in the US will be reduced or not and, last but not least, carefully observing new developments in Syria that may also affect regional sentiment.