Erste Group: CEE Macro/Fixed Income Daily
September 25, 2012
HU Rates: Today, the CB holds its rate setting monetary meeting. Given the highly divided monetary council, the outcome of today’s meeting is less predictable than usual. Despite the fact that the market environment has remained relatively favourable and CDS spreads have further decreased compared to the levels seen at the end of August, we tend to say that the council will be a bit more cautious and that they will keep the policy rate on hold at 6.75% this month. The main reason could be the worsening inflation outlook. The 12-month CPI inflation rate accelerated to 6% in August and is expected to have further increased in September to around 6.4-6.5%. Worsening inflation could be in focus to a greater extent this month, as the bank’s staff has definitely raised its inflation predictions for both 2012 and 2013 in the CB Quarterly Inflation Report. (In June, the bank forecasted a 5.3% annual average inflation rate for 2012 and 3.5% for 2013). Predictions for inflation and GDP will be available at the time of the rate announcement, while the full report will be published on Thursday. However, the monetary easing could continue later and we stick to our forecast that the policy rate will stand at 6.25% at the end of this year.
CZ Politics: Czech President Klaus vetoed the pension reform yesterday. Parliament will now need to muster 101 votes to override the veto or the government will fall but we think the government will succeed. We see this as merely the latest in a series of moves by the President aimed at weakening the PM position andmaking a final mark as his term draws to an end. We stick with our forecast for a slight rise in yields and EURCZK at 24.7 at year end.
CEE Fixed Income: CEE government bonds had a relatively quiet day yesterday with Croatia a notable underperformer following the intervention by the HNB in the FX market. Indeed, central banks will play a pivotal role this week in terms of scheduled events as well. The MNB will decide whether to cut rates once again today with a slight majority of analysts forecasting another 25 bp cut whilst the broad consensus expects the CNB to cut rates on Thursday by the same amount. The NBR will likely keep rates on hold. In Poland, NBP and voting member of the MPC, Glapinski, went on the wires saying now is not the time to cut rates and that he would prefer to keep them flat until year end. This is at odds with market pricing. 3 month FRAs are currently 45 bps below 3 month WIBOR.