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Raiffeisen Bank on Polish macroeconomy: NBP keeps the surprise factor high

October 5, 2012
Market comment 

Despite latest weak data (drop of PMI to 47) and the market consensus for a 25bp cut, the MPC surprised – once again – with a continuation of the “wait and see” stance. In the commentary after the MPC meeting the explanation for such move was the still elevated inflation and the fact that the MPC still wants to have more clarity regarding future trend in the real economy. However, the overall tone of the commentary suggests that the MPC will decide for interest rate cuts, most probably starting in November. These tendencies will probably be confirmed by the new inflation projection to be published in November, which may then provide more reasons for the MPC to start cutting rates. 

Market outlook 

Little suggests that sentiment for Polish bonds would change from a short-term perspective. The rise in yields after the MPC decision was not significant and the day afterwards the Ministry of Finance (MinFin) carried out another successful bond tender worth PLN 5.9 bn. Most likely Polish bonds will stay relatively strong in October with only a slight increase of yields possible across the curve. The upside risk for yields results from both domestic (no rate cut in October and high inflation expected in September) and international factors (e.g. possibility of outflows from debt stocks). Another factor that could weaken bond prices is the increased supply as the MinFin announced it is willing to prefinance large parts of the next year’s borrowing needs already this year (2012 borrowing needs are fulfilled 100%). Among information able to support demand in October we see mainly the domestic, macroeconomic data from the real economy. Relevant data releases are, however, scheduled for the second part of the month. Meanwhile, the nearest macroeconomic figures to be released on 15th October, are the CPI dynamics which may even accelerate to almost 4% yoy hurting demand on bonds. With no macroeconomic releases in the next week this makes us to expect a slight increase in yields until mid of October, followed by a possible recovery later in October.