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CEE: CNB likely to clash with the market again this week
In Poland, core inflation for June will be published today. We expect an increase from 8.5% to 9.3% YoY in line with market expectations. On Wednesday we will see data from the labour market and industrial production. We expect June output to show consistently strong year-on-year growth above 13%, however, quarter-on-quarter momentum has already declined in previous months. Retail services, which will be released on Thursday, should also show a strong reading. In the rest of the region, we have a rather lighter calendar this week. Czech PPI, the last of a set of monthly numbers, will be released on Wednesday, and we also have the last week and a half until the Czech National Bank's blackout period begins before the August meeting so we can expect more comments from the board in the coming days. Over the weekend, we saw an interview with CNB's Oldrich Dedek who confirmed his view not to raise interest rates further and instead is in favour of continued FX intervention.
Finally, on Friday, after the close of trading, Fitch is going to publish its rating review for Poland and Hungary. Back in May, the agency downgraded the outlook from stable to negative for the Czech Republic, and we think the same move is possible for Hungary.
On the FX side, the Polish zloty finally broke below our level of 4.80, however, we see no room to go lower for now. Rates have fallen again in response to Governor Adam Glapinski's latest statement, and we only see further room for appreciation if rates are able to return to their June levels. The Czech koruna peaked near 24.30, as we expected, and we anticipate the market to reach CNB levels in the 24.60-70 range this week, which should trigger more central bank activity in the market compared to the previous week. However, Hungary's forint was the main surprise last week, managing to get close to 400, the strongest level in two weeks. Indeed, market rates reached new records, but we still believe that the forint will soon correct and move back above 405.
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