The EUR/PLN pair headed south and eased past 3.97 area right after the opening on news from the PM Jaroslaw Kaczynski that Zyta Gilowska would rejoin the government and take over the deputy PM and finance minister posts next week. The rally was not that impressive though (even though the unit eventually reached the 3.95 area) since the decision has not yet been confirmed by Gilowska herself and because markets seem more concerned with today’s inflation data than politics at the moment. Nevertheless it remains our base scenario that Gilowska will return for short while before eventually taking over the NBP presidency. PiS politicians have indicated that the comeback itself will most likely take place no sooner than late next week, so even if Gilowska decides to return she will have little, if any, influence on the final form of the 2007 budget act. Hence the potential for further upside should not be overestimated.
The (slightly negative) impact of today’s CPI report on the zloty, if any, will be indirect with bonds as the transmission channel. Regarding the recent EUR/PLN rebound we are inclined to treat it as a temporary correction, with more downside to come next week as the budget battle resumes.
(CSOB - Investment research)