CEE Bond Markets Outlook

24 Iunie 2011

RAIFFEISEN BANK S.A.

 

Highlights

Poland – Next week, the current account data release and the NBP’s inflation expectations will be the most interesting releases. We are still waiting for an explanation of the recent muscularity in the current account data and a possible revision of historic data. With regard to surveyed inflation expectations, if inflation expectations pass the 4.7% level (prior: 4.3%), it could be negative for long-term yields. Such a level could cause a reversal of current bets that the NBP is done with its hikes in 2011.

Hungary – The Monetary Council left the base rate unchanged for the fourth consecutive month. The decision was unanimous this time as well and was delivered following the Central Bank’s new quarterly Inflation Report, which was published on Wednesday. According to the Inflation Report and the press release by the NBH, the base rate may remain unchanged at the current level over a sustained period, which should help the Central Bank to achieve its 3% inflation target by the end of 2012.

Czech Republic – As expected, the Czech National Bank left the key interest rate unchanged at 0.75%. This time around, it was easier to predict such an outcome, as the central bankers recently expressed satisfaction with the latest CNB forecast that suggests raising interest rates in Q4 2011. Five board members voted for no change and the remaining two members for a rate hike by 25bp.

Romania – The leu exchange rate suffered from the increase in risk aversion on the external markets.Uncertainty with regards to the sovereign debt crisis in Greece is likely to persist in the coming weeks, but we expect the impact on the domestic financial market to be relatively limited.

Croatia – Real GDP shrunk by 0.8% yoy in Q1 2011. All components of GDP contributed to the contraction. Personal consumption, which has the biggest share in GDP, fell by 0.1% yoy after positive movements in Q3 and Q4 2010. A continuing decline in investment was expected (-6.7% yoy), since not much has changed to improve the overall investment climate and due to the government's limited spending ability.

Russia – The economy ministry estimates that May GDP will be up 3.8% yoy following 3.3% growth in April. Overall, the economic statistics in May painted a better picture, with both incomes and investment rising while the unemployment rate fell to its lowest level since September 2008. We see Russia’s economy strengthening in H2 partly due to an investment rebound. However, Russia will also feel the effects of the cooling global economy and the risk of domestic elections, both of which will limit the growth upside to 4–5% this year.

Turkey – The Turkish lira weakened slightly after the central bank’s decision not to change the key interest rate of 6.25%. The statement of the monetary policy committee largely expresses a “waitand- see” attitude. Nevertheless, we stick to our view that some key rate increases are due in the second half of the year. We expect bond yields to climb further: either due to continued negative perception of the current (dovish) policies, or due to the implementation of more orthodox restrictive policies.

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