Afternoon analysis 26.03.2015

No breakthrough in the private credit developments in the eurozone. High volatility in the currency market. The zloty dropped as the risk aversion hit high-yielding currencies.

In February, the private credit growth stood at minus 0.1 percent – the European Central Bank said in today's report. A result below plus 0.1 percent was expected. Moreover, the numbers from the previous month were revised down to minus 0.2 percent from minus 0.1 percent.

Since mid-2014, the ECB has introduced a variety of tools aimed at spurring on the credit action. The most important measure is the quantitative easing launched this month. Earlier, the Frankfurt-based institution used a negative deposit rate, launched private asset purchases and conducted tenders of cheap loans aimed at the real economy (TLTRO).

As a result, the private credit deterioration has been tamed – the rate of decline was clearly smaller than previously observed. Moreover, recent data concerning credit availability show that the credit conditions are improving. If private credit finally rebounds, the real economy will show significant improvement whereas the QE will canalize flow of the credit to the economy.

Greek bank is troubled

The future of Greece is still vague. Although the negative scenario – that the country will go bankrupt and leave the eurozone – is not very likely, Greeks are not willing to risk and withdraw their money from banks.

In February, the overall value of deposits in Greek banks dropped 5 percent to 140.5 billion euro – the lowest level since March 2005. In the last three months, deposit outflow amounted to 23.8 billion euro.

Given the situation in the banking sector, the Greek government faces mounting problems with financing its normal operations. Nevertheless, on Monday the prime minister Alexis Tsipras is expected to reveal his reform plan – a condition for receiving money from bailout program. If the plan meets the Eurogroup expectations, the Greek turmoil will finally end.

Weaker zloty

On Thursday the volatility was very high. Mounting risk factors have affected negatively the market sentiment, which has resulted in an increase in risk aversion. The main reason was the intervention in Yemen that poses risk to the whole region (more about this issue in our morning commentary).

The zloty was pressured after quite a good first part of the day. The Polish currency posted some losses against all its major pairs.

The EUR/USD was pressured by today's data from the US labor market. The number of unemployment claims dropped to 282k – a result below expectations and less than previously reported. Moreover, the service PMI index exceeded the forecast – which also supported the dollar against the euro.

A spike in risk aversion and volatility may deteriorate the zloty's outlook. Although the Polish currency will be rather stable, a more significant appreciation is not very likely.