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Raiffeisen Bank: Real economy overtakes NBP

October 19, 2012
Market comment 

With the latest industrial production data (-5.2% yoy vs. -3.9% expected) the real economy once again disappointed on the downside. In terms of IP downward momentum (i.e. looking at the 3m moving average IP yoy growth rates) Poland, together with Ukraine, is among the worst performers in our CEE universe. Therefore, some MPC members are now even not ruling out more decisive rate cuts (i.e. more than 25bp) in the near term future (i.e. at the next MPC meeting beginning of November). Such comments are definitely surprising given the still reluctant stance towards rate cuts beginning of October. For next week we expect retail sales and unemployment data to confirm the soft patch in the Polish economy. 

Market outlook

Recent economic data and MPC comments are clearly supportive for the bond market and hence we still see support for Polish bonds despite the current ultralow yields levels across the whole curve. Given the very strong downward momentum in the real economy and the fact that we consider the NBP as being behind the curve, we are currently revising our base rate/interest rate scenario. We tend to think that 75bp in rate cuts will not be sufficient anymore and expect at least 100bp in rate cuts (start of the rate cut cycle in November). Therefore, the rate cut cycle may also last well into H1 2013 (and not only Q1 2013), which could provide more support for the bond market in Q4 2012 and Q1 2013 compared to our current yield outlook. In contrast we are still fine with our more conservative EUR/PLN outlook. The currency pair currently already suffers somewhat from the outlook for a decreasing carry and a fairly pronounced cyclical slowdown in the real economy.