Morgan Stanley: Fed Rate Cuts Still on Track Despite Oil-Driven Inflation 
Citigroup Delays Fed Rate Cut Forecast Amid Strong Jobs Data and Inflation Concerns 
RBNZ Holds Rates at 2.25% as Middle East Conflict Fuels Inflation Concerns 
RBI Clamps Down on Rupee NDF Activity, Banks Face Steeper Losses 
ECB Warns of Rising Inflation Risks Amid Iran War Energy Shock 
RBI Holds Interest Rates Steady Amid Middle East Tensions and Global Uncertainty 
Bank of Japan's Ueda Flags Low Real Interest Rates as Key Factor in Rate Hike Timing 
Australia Bans Card Payment Surcharges Starting October 2025 
Bank of Korea Nominee Shin Hyun-song Signals Possible Rate Hike Amid Middle East Inflation Fears 
Japan Inflation Expectations Rise as BOJ Rate Hike Timing Faces Uncertainty 
Bank of Japan Governor Signals Accommodative Stance Amid Negative Real Rates 
Bank of Korea Governor Nominee Warns of Action if Korean Won Weakens Further 
The MPC of Polish central bank (NBP) meeting yesterday was a non-event from a rate standpoint. But it brought fresh dovish emphasis as per the market anticipation.
Perhaps the CB's latest message is best summarized by the paragraph "after a significant rise at the beginning of the year, [inflation] declined somewhat in March. Core inflation remains low, which points to still weak demand pressure.
Despite growing employment and wages, growth in unit labour costs remains moderate".
Governor Adam Glapinski remarked that he personally sees no reason for the policy rate to be higher even by the end of next year -- this matches our own forecast of no rate hike this year or next.
As the ECB is expected to taper its purchases later this year, we expect EURPLN to gradually rise by the end of 2017.
Fading European political risks and strong equity market performance leads us to move MW PLN in the JP Morgan’s GBI-EM Model Portfolio. For zloty, risks from forced FX mortgage conversions have largely faded, and medium-term valuations are currently around fair value.
In addition, while we do not expect rate hikes in Poland until mid-2018, the NBP is relatively hawkish compared with the NBH. The Polish central bank has guided the market towards stable interest rates, whereas the Hungarian central bank is actively pursuing stimulative policy, despite a more aggressive inflation profile.
Currently, it seems that the risk-reward is more favorable for HUF shorts, prompting us to turn MW PLN (from UW) and increase the size of our UW HUF position. We maintain an UW CEE FX allocation overall, via UW HUF partially hedged with OW RON.
In outright trades, it is encouraged to hold 1m EURPLN calls, to keep exposure to potential contagion from political anxiety in Europe in the run-up to French presidential elections next month, although this risk has been falling in recent weeks.
GBI-EM Model Portfolio: UW HUF, OW RON and OW RUB.
The base case is that the CNB will scrap the floor on May 4th regular policy meeting, but given the continued build-up in reserves, an earlier exit is almost as likely.
Outright trades:
Long 26-Apr-17 EURPLN call (4.35), spot ref: 4.2244.
Short 27-Nov-17 EURCZK forward.
Short EURILS.
We think fundamental appreciation pressures should gradually begin to assert themselves once the koruna stabilizes, EURCZK to reach around 26.00- 26.25 by year-end; hold short 27-Nov-17 EURCZK forwards.
