Poland: Higher Interest Rates Coming?

Sep.16.09 | About: Morgan Stanley (RNE)

The Polish zloty stabilized Tuesday after Monday's trade-deficit induced slide. The higher than expected August consumer price increase reinforces ideas that the Poland has reached the end of its easing cycle and that the next move will be higher rates, though we envisage this to be a few quarters away. Hungary, Turkey and Russia are still in an easing mode, while there may be another cut left for the Czech Republic.

August inflation rose 3.7% year-over-year after a 3.6% reading in July. On the month itself, CPI fell 0.4%, whereas the market was looking for a 0.5% decline. The central bank targets a 1% band around 2.5%. The August reading is the highest since April.

On Monday an unexpected current account deficit drove the zloty sharply lower. The euro recorded a high near PLN4.2480 Monday before pulling back Tuesday toward PLN4.1535. In recent weeks the euro seems to be finding a base in the PLN4.075-PLN4.0800 area.

Meanwhile Poland is selling off three chemical producers and is hoping to sell them to one company. Reports suggest interest is keen. Poland is selling off some state assets as a way to reduce its fiscal shortfalls this year and next year.

Disclosure: No positions