CEE Weekly Bond Markets Outlook

In Poland we expect an above-consensus inflation figure which will bring selling pressure on the Polish bond market. The zloty rally was driven by high bond market and equity inflows and this could be reversed in the short run. EUR/PLN will be supported by further carry trade unwinding.

In Hungary a sudden sell-off in the regional markets also provoked a weakening of the HUF. With this weakening the possibility of a move towards the strong end of the exchange band during the long weekend in Hungary seems out of reach. But with further interest rate cut expectations there should be good support for HUF and HGB at current levels.

The Czech crown even scratched the 29.3 threshold against the EUR before the bond sell-off on international markets put somewhat of a dent into the CEE currencies. The very healthy composition of stronger than expected Q4 GDP growth (4.3% yoy) and benign inflationary tendencies along with the persisting strength of the CZK are expected to prompt the CNB to further trim its key 2-week repo rate to the ECB\'s 2.0% mark at its monetary policy meeting in March.

Even after slashing its key 2-week repo rate by 100bp to 3.0% the week before, another interest rate cut by the National Bank of Slovakia (NBS) is all but ruled out given the continued appreciation pressure on the SKK. The NBS continued to leave the market in excess liquidity by rejecting all bids in its regular 2-week repo auction, and could even squeeze effective short-term money market rates to below the 2.0% mark of the Eurozone.