Markets

CEE MARKETS-Polish bonds ease, CPI rises more than expected

Published July 31, 2017 Updated July 31, 2017 07:42pm

Political upheaval continues to weigh on the zloty after Brussels launched an infringement procedure against what it sees as the Polish government's attempts to undermine the independence of judges.

On Monday rating agency Moody's warned that the judiciary reform is credit negative.

Polish inflation picked up to an annual 1.7 percent in July from 1.5 percent in June, above analysts' 1.6 percent forecast.

Polish government bond yields rose, mainly in longer maturities, as despite the higher inflation, the central bank is expected to keep interest rates steady this year and next.

The bonds failed to benefit from an announcement from the Polish Finance Ministry that it did not plan to hold any regular bond or Treasury bill auctions in August.

"Low supply in August was a rather supportive factor for Polish debt, but 10-year bond yields are still rising 6 basis points (to 3.4 percent). The market focuses on higher inflation data," said PKO BP strategist, Arkadiusz Trzciolek.

The latest comments from the Polish central bank came from rate setter Eryk Lon, who was quoted as saying on Saturday that interest rates were likely to stay flat until the end of 2018.

Some Polish central bankers earlier warned of a tight labour market and the effects of continued negative real interest rates.

The zloty was flat at 4.2546 against the euro.

In the unlikely event of a signal from the central bank for a possible earlier rate hike, investors would probably be cautious over the zloty due to tension between Warsaw and the European Commission over Poland's judicial reform, analysts have said.

The zloty regained some ground last week as President Andrzej Duda said he would veto two of the three reform bills. The government has stood firm on its planned reform, prompting street protests.

The zloty still trades near last week's 3-month lows.

Trzciolek said investors would be watching Thursday's Czech central bank's meeting, where it may deliver its first interest rate hike for almost a decade, and the region's first for several years.

The crown touched a 2-week low against the euro as investors scale back ahead of the meeting. Later it regained some ground, trading at 26.109, still weaker by a quarter of a percent.

The Czech Finance Ministry raised its forecast for 2017 economic growth on Monday to 3.1 percent from 2.5 percent.

 

Copyright Reuters, 2017