Weekly economic update 25 - 31 August 2008

Last week passed under the sign of slight zloty rebound against main currencies amid correction in EURUSD and surge in oil prices. Bonds continued strengthening trend since the start of the week despite higher than expected data about wages and employment. Data about industrial output and PPI were much lower than predicted and contributed to further strengthening in interest rate market. Net inflation increased in line with market consensus to 3.5%YoY and MPC minutes showed that the hawkish camp in the Council opted for interest rate hike already in July and it will probably not change at the next meeting.

Main event of the week will be the MPC meeting that will conclude with no change in interest rates. The statement after the meeting may include references to the exchange rate (substantial weakening since the last meeting) and to a scale of economic slowdown.

An important issue for the MPC may be a change in expectations concerning monetary policy perspectives in the euro zone, as well as a drop in oil prices. However, in our view the MPC statement will not be less hawkish than the previous one. Moreover, we expect that retail sales data will show higher growth than predicted by the market, which should prevent further strengthening on the interest rate market. A slight depreciation of the zloty is possible with 3.34 versus euro as a resistance level. At the end of the week, the CSO will release GDP data for Q2 that are likely to show slight economic slowdown as compared to Q1. 

Download: Weekly economic update 25- 31 August 2008