Central European Daily

Headlines
Currencies:  Polish central bankers see growth accelerating next year
Fixed Income:  Czech inflation surprises on the upside

Czech Republic

The Czech koruna closed the session marginally stronger at 25.05 EUR/CZK, yesterday. The successful auction of 5Y/3.14% government bonds (average yield reached 3.07 percent) might have played in favour of the koruna. With yields at 3.07% and the bid to cover ratio at 2, the auction seemed to be little affected by deteriorating sentiment on global fixed income markets.

Figures on November's consumer inflation as well as the revision and details of Q3 GDP growth were released today. Inflation beat market expectations, since it grew by 2.0% y/y in November, driven up mainly by higher food prices, which were influenced by both seasonal factors and higher prices of agricultural commodities. We expect the inflation rate to rise in the months ahead due to the continuing increase in food
prices and higher prices of fuel and housing costs (including energies). Previously announced GDP growth was revised downwards by 0.2% to 2.8% on y/y basis. Given the fact that economic growth was pulled mainly by consumption and investment to solar power plants, we maintain our view that the pace of growth is not sustainable.

As far as today's session is concerned, we expect that the koruna should be trading sideways. With the exception of US initial jobless claims report, we do not expect any important news, which could have significant impact on the koruna's trading.

Hungary
The Hungarian forint kept on its recent relatively stable trading and the EUR/HUF pair moved within the range of 277-279 on Wednesday. Improving global risk appetite helped it to establish a tint of strengthening during the day, which may bring it to test the 200-day moving average of 276.10 soon. Quiet trading could help ease fears about the outlook as many investors are still concerned by the sustainability of public finances in 2013-2014. We expect calm trading to continue this week.

The bond market had another day with relief and yields lowered about 5bps at the long-end, which means that even offers are now below the 8.00% yield level. Foreign bond holdings have not yet shown any significant drop from this year’s record high level of Ft2543bn, suggesting the bond investors moved to the sideline during the recent turmoil, but have so far did not sold assets in big size or they probably just hedged the fx risk behind bond positions.

Poland
In spite of the weakening intraday, the Polish zloty closed almost at yesterday's opening level around 4.04 EUR/PLN. As far as domestic news is concerned, comments of two members of Monetary Policy Council were worth noting. Andrzej Kazmierczak reiterated his dovish stance since he said that interest rate hike might fail to curb rising inflation, but could stop economic recovery and jeopardize positive development on the labour market. Anna Zielinska-Glebocka said that the cut in the Hungarian bond rating might harm Polish bonds as well, despite the good shape of Polish economy. Zielinska-Glebocka also said that GDP in 2011 might grow by maximum of 4.0 to 4.5 percent. Markets currently estimate growth rate at 3.7 percent.

As in the case of the Czech currency, we think that the zloty should stay sideways today. US initial jobless claims might weigh on the zloty's afternoon trading.
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