Emerging-Market Central Bank Preview
Hungary, Tuesday, 13:00 GMT: We agree with the majority of analysts, who expect the MNB to continue tightening by 50 basis points, but the chance of a surprise has increased a lot in recent days.
If it were not for the currency risks, the central banks would be on an easing path. Economic numbers have generally come on the weak side and are expected to worsen substantially this year given the declining confidence in the economy and likely credit contraction by banks.
Positive sentiment toward the forint continues on more supportive comments about Hungary's prospects of getting an agreement with the IMF, but we do not think it is enough to change the central bank's cautious stance.
There is a long road from here until an actual agreement is reached, and sentiment toward HUF could change quickly with just one negative headline.In the near term, however, we still see EUR/HUF testing the 300 level should risk appetite hold up, and it could be a good level to establish new longs given our skepticism about Hungary. Thailand, Wednesday 07:30 GMT: The combination of weaker global demand and the protracted economic impacts of the floods are likely drive Thailand's central bank to deliver another cut of 25 basis points, to 3.00%, at Wednesday's meeting. Recent comments from Governor Prasarn support this view. However, it is possible that the bank will adopt a wait-and-see approach after this meeting. The bank recently increased its 2012 GDP forecast from 4.1% to 4.8% on the back of expected stimulus from government reconstruction spending. Moreover, inflation pressures remain relatively high, though lower import prices will help cap the upside. USD/THB has come sharply lower along with other regional currencies after failing to break the 32.0 level a few weeks ago. The next key level to watch would be the 50-day moving average at 31.32. With China likely avoiding a hard landing this year, we remain constructive on the stronger regional emerging-market credits such as Thailand.
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