Afternoon analysis 21.04.2015

The zloty exceeded its recent gains by exploiting the weakness of the euro. The unpredictability of the Greek crisis is weighting negatively on the common currency.

The future of Greece is getting more vague. In the beginning of the session there was information, that the European Central Bank is going to limit the emergency liquidity assistance to the Greek banking sector – a negative factor for the euro. Moreover, the media said that the Greek prime minister Alexis Tsipras urged local authorities to allow the central government to use their money as a measure to hoard money for the coming payments of pensions and wages in the public sector.

On the other hand, comments from the major European official were rather calming. The ECB vice-president Vitor Constancio and the European Commission chair Jean Claude Juncker excluded the possibility of Greece leaving the euro zone or the country going bankrupt (more about the issue in our morning commentary).

In the second part of the session, the information agencies cited the unofficial sources that stated although there probably will be no agreement in Riga on Friday, the Eurogroup may always make an extraordinary meeting in the end of April, if Athens finds a common ground with its international creditors.

To sum up, the mounting anxiety concerning Greece pressured the euro. The EUR/USD dropped for the second day in a row. The Greek financial sector was heavily hit – shares of banks were posting the largest losses. Moreover, the yields on the three year government bond increased to as high as 29 percent – the level last seen in 2012.

Stronger zloty

The Hungarian National Bank cut the interest rates. The major interest rate has been lower to 1.80 percent – the lowest level in the history. This move is a response to deflation. In March the price growth stood at minus 0.6 percent – the lowest level since 1960s.

The forint posted significant gains since the previous interest rate cut (plus 2 percent against the euro). It was caused by the fact, that the market participants were expecting a larger cut. Thus, today's move of the central bank is in part a response to the currency's appreciation. As a result, the price competitiveness of the Hungarian export should be improved in the long term.

The bond buying program pursued by the European Central Bank has pushed the monetary authorities form the emerging markets countries to lower interest rates to tame local currencies' appreciation. The credit cost was cut in Romania and Serbia. The Monetary Policy Council cut the interest rate by 50 basis points to 1.50 percent – the lowest level in the history – in March as well.

Yesterday's data from the Polish economy has been the impulse for the zloty to extend gains. The industrial production figures and the retail sales reports coupled with a strong expansion in the labor market are a very good basis to expect that the GDP growth in the first quarter will be strong.

In the long term the zloty will probably continue to rise. The EUR/PLN is likely to drop below the 3.90 zloty level in the mid 2015. If the broad market sentiment improves and the Greek anxiety is limited, the zloty's appreciation potential will increase.