Afternoon analysis 16.02.2015

The zloty was little changed before reports from Poland. Investors are waiting for the news from Brussels. The ECB warned that ELA is aimed at helping banks not governments.

Greece has returned to the negotiation table with its creditors. Every one is interested in finding a compromise – thus both sides have to make some concessions. Athens are seeking softer credit conditions and removing some reforms burden. In turn, the European Union expects the country to pursue reforms imposed by the Troika.

Nevertheless, even if today's talks fail to find a solution, a next meeting will be scheduled. Currency bailout program expires in two weeks – thus still there is a lot of time for forging a consensus.

The European Central Bank tried to increase the pressure on Athens. Peter Praet from – the ECB Board Member – said that the emergency liquidity assistance (ELA) is aimed at helping bank not governments. Praet said also, that the liquidity provisions are only temporary.

Last week the news agencies said that the ECB agreed to expand the ELA for Greece to 65 billion euros from 60 billion. The decision came after the pressure in the Greek banking system increased as Greeks withdraw their money from bank accounts.

The euro was stable, slightly above 1.14 dollar. A low volatility was caused by the holidays in the United States. Moreover, investors are not making any bets before the final outcome of today's meeting in Brussels.

The zloty little changed before reports

Reports from the Polish economy released on Friday reveal some deterioration of the economic landscape. The GDP growth stood at 3 percent – less than 3.2 percent projected. Moreover, inflation report revealed that deflation increased – the price level drop increased to minus 1.2 percent. It was the lowest level in history.

The Polish monetary authorities said after last meeting that the rates will be cut in March. However, the amount of cuts is still unknown as the MPC may consider a similar move like in fall, when credit cost dropped 50 basis points.

The major reports – inflation and GDP – provided dovish arguments. Still, the GDP reports is rather lagged, thus the MPC would asses short-term indicators before cutting the rates. That increases the weight of tomorrow's reports on wages and employment. Moreover, on Wednesday the industrial production data and retail sales reports are due.

No hints form Brussels and some stabilization in Ukraine shifts zloty market attention to domestic factors. The expectations before reports are rather optimistic – as a result there is a room for missing the projections. If tomorrow’s reports disappoints, the zloty may be weakened, but the EUR/PLN will stay near 4.20 and the CHF/PLN will not breach 4 zloty level.