The flow of relatively good data from the US and worries about the fiscal trouble plaguing Greece resulted in further EUR weakening (-3% w/w). The stronger USD sent the Hungarian forint, Czech koruna and Polish zloty down about 1-2% w/w against the euro. The Romanian leu gained, as talks on forming a new coalition government advanced during the week. The new government will likely be formed around the Democrat Liberal Party and the Democratic Union of Hungarians in Romania, supported by some independent MPs and the representatives of ethnic minorities in the Parliament. It seems that Romania is well on track to receive the third tranche of IMF money in mid-February, if the budget is approved early next year. Hungary's debt agency announced that their baseline scenario for financing the government debt is not to draw any extra money from the IMF/EU, but rather finance the gap from borrowing on markets (local and international) and the IMF money they have put aside so far. Nevertheless, the net issuance of local currency government securities is planned to be very low (only about EUR 1.2bn), which should be supportive for bonds.

Next week, the Hungarian and Polish central banks will decide on rates. After the surprising move by the Czech national bank this week (a 25bp cut to 1%), there is little reason for another surprise. Hungary's central bank is likely to continue in monetary easing (we bet on a 25bp cut), while the Polish central bank should keep rates unchanged.

Question of the week

What do you think is the question of the year for 2010?

Highlights

Croatia: Central bank announces possibility of easing monetary stance

Czech Republic: Central bank in surprise rate cut

Hungary: Last rate setting meeting of year in focus next week

Poland: Last MPC meeting of 2009 should not bring any surprises

Romania: Romania may receive next tranche from IMF in February

Ukraine: Industrial production declined slightly