Wednesday, July 14, 2010

We have updated our macroeconomic forecast for the Russian economy

Forex Special


  • We have updated our macroeconomic forecast for the Russian economy. We still believe that growth in 2010 will remain modest, due to low investment activity, but 2011 holds the potential for an upside surprise. 
  • Polish inflation rose to 2.3% in June – up from 2.2% y/y in May. This was above the consensus expectation of 2.1% y/y and our expectation of 2.2%. While the actual number is not a major shock it nonetheless is further reason to keep an eye on Polish inflation. On Monday, Polish MPC member Andrzey Bratkowski indicated, in an interview with Bloomberg, that rates might need to be hiked soon. We no longer rule out a rate hike this year – perhaps as soon as in the next couple of months. 
  • Hungary’s inflation in June surprised on the upside, increasing to 5.3% y/y, up from May’s 5.1% y/y. Looking ahead, we expect headline inflation to be a little lower, as base effects from last year’s VAT hike kicks in. Overall, the picture is still one of too high Hungarian inflation, which means that there is no room for further monetary easing. On the other hand, the very weak economy means that there is no immediate pressure to tighten monetary policy either. The big joker for inflation and hence for monetary policy in the coming months will be the development in the forint. 
  • Yesterday, the EU set Estonia’s euro convention rate at 15.6466 per euro, which was exactly the spot level and the level set by the Estonian currency board. 
  • Yesterday, Czech President Vaclav Klaus appointed a new Czech government, led by Prime Minister Petr Necas. We expect the new centre-right government to get to work (with the main focus on curbing the budget deficit and implementing important reforms), as it has strong majority of 118 seats (out of 200) in the Czech parliament.


  • South African retail sales for May should be interesting. Traditionally, the retails sales are an indicator of the strength of private consumption. Hence, if the outcome of the retail sales surprises on the downside it could add to speculation that the South African central bank could cut interest rates at July’s MPC meeting.

Trading Update

  • Keep an eye on Polish rates and yields, as a possible rate hike from the Polish central bank moves closer. The market has, over the past couple of weeks, been increasingly pricing-in rate hikes in Poland over the coming six to 12 months. However, we see some value in being positioned for a further pricing-in of rate hikes. This could also be supportive of the Polish zloty, which could get some support if the markets start to expect an imminent initiation of a tightening cycle.


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