The National Bank of Poland is likely to cut rates by 25bp to 4.75% today, in line with market expectations. The rate cut is supported by a better inflation outlook. On the other hand, last week’s higher-than-expected draft state budget deficit is more likely to prompt a hawkish response from the central bank. Therefore, we are most likely to see a hawkish cut today, which could be indicated by the statement following the decision. Tomorrow’s press conference will be key, where we should hear a cautious tone. Our economists recently lowered their expected rate cuts for this year from three to two (including today’s decision), which is roughly in line with market pricing. However, some MPC members have already indicated that September’s rate cut may be the last. Although this rhetoric may change later, for today’s meeting and tomorrow’s press conference, we see it as support for PLN. We therefore see a good chance for EUR/PLN to return below 4.250.
Yesterday’s court ruling triggered some volatility in Turkey, where we saw a spike in bonds and FX implied yields, while USD/TRY spot appears unaffected. Still, the court’s decision on 15 September should be more important for markets, but yesterday’s headlines and reaction indicate current market nervousness. As we discussed earlier, we continue to prefer the spot market for these reasons, where the Central Bank of Turkey appears to have the situation fully under control and carry remains sufficient, while the bond market appears to be the most sensitive.
Wages for Q2 will be published in the Czech Republic, where we expect an acceleration from 3.9% to 4.3% in real terms, which is in line with the CNB forecast as well. However, the CNB’s focus will mainly be on today’s negotiations between the government and trade unions, which should decide on wage increases for public servants for next year. The government is proposing 5% or 7%, while the unions are demanding 10%. We are very likely to see 7%, which is significantly above the CNB forecast, and together with the previous increase in the minimum wage, it seems that the 5.5% for next year in the CNB forecast is out of the question. Therefore, we remain bullish on the CZK, and after yesterday’s expected correction, 24.500 EUR/CZK may be an opportunity for new shorts here in our view.
Frantisek Taborsky
