The only news headline of the day was a warning signal in the morning from finance minister Zyta Gilowska that revenues of approx PLN 5 bn are under risk in the current state budget.
The market opened at 3.7700 EUR/PLN and 3.1820 USD/PLN. In an interview in one of local daily papers Zyta Gilowska confirmed earlier speculations on a potential shortfall in revenues in the 2006 budget. From our perspective, at least the January budget data do not justify the concern and we believe that this scenario should be treated as extremely pessimistic. In addition, the macroeconomic parameters such as GDP growth and the situation on the labour market that are presumed in the budget are relatively conservative and therefore create a certain safety margin. In this context, the statement should be seen as a warning that the budget is tight and that no attempts should be made to increase spending this year. This primarily applies to all spending proposals from populist Samoobrona and LPR.
Today, all eyes are on the central bank interest rates decision. We think that the overall macro picture clearly supports the case for a further easing of monetary policy. The key question is when. The MPC could decide to postpone a cut until March. Even so, we still believe that the probability is still slightly higher for a cut today, rather than a delay until next month. A further decrease in the positive carry between Polish and European rates may lead to some repositioning of global investment portfolios further out. However, in a day to day perspective we still hold on to the view that a positive reaction on the bond market should be positive for the currency, too.
(CSOB - Investment research)