February confirms that deflation persists in Poland


Conversion prices from FX conversion of CHF mortgages might be larger for Polish banks

February confirms that deflation persists in Poland

The Polish zloty weakened yesterday, which was not simply profit-taking, however two adverse elementary might be in play too – unfavorable information about Polish banks and deeper deflation recorded in February.

The Polish regulator KNF commented on president-proposed CHF mortgage invoice. Within the base–case state of affairs (assuming FX & rates of interest fastened at end-Dec 2015 degree) KNF sees PLN 66.9bn hit to banks in 2016, whereas within the antagonistic state of affairs (FX & rates of interest 25% above end-Dec 2015 degree) banks might take PLN 74.2 to PLN 107.2bn hit in 2016. Therefore, the assumed conversion prices are far above expectations, at present set at some PLN 30-50bn (even in case of base-case state of affairs). Therefore, it helps our damaging view on the entire Polish banking sector, nevertheless the presidential invoice is more likely to be soften at the least a bit on the finish and the banks shouldn’t have been harm an excessive amount of in our view.

Relating to the February inflation launched yesterday too, the market observed that shopper costs fell to -Zero.eight% Y/Y. As anticipated, gasoline costs have been once more the important thing driver behind very low inflation figures. On this respect it’s value noting that the Polish Statistical Workplace will launch one other set of associated knowledge right now – wages and core inflation, however we don’t anticipate any response this time. All Central European markets ought to concentrate on the FOMC assembly. We anticipate the Fed to decrease 2016 price hike projections from four to three within the dot plot whereas reinserting the “balanced dangers” phrase within the assertion. That opens the best way to a June price hike.

Currencies % chng
EUR/CZK 27.04 Zero.Zero
EUR/HUF 310.eight Zero.three
EUR/PLN four.29 Zero.5
EUR/USD 1.11 Zero.Zero
EUR/CHF 1.10 Zero.Zero
FRA 3×6 % bps chng
CZK Zero.23 Zero
HUF 1.13 Zero
PLN 1.53 Zero
EUR -Zero.23 Zero
GB % bps chng
Czech Rep. 10Y Zero.40 1
Hungary 10Y three.29 four
Poland 10Y 2.88 1
Slovakia 10Y Zero.53 2
CDS 5Y % bps chng
Czech Rep. 46 Zero
Hungary 158 1
Poland 91 Zero
Slovakia 46 Zero