Investiční bankovnictví (Komerční banka)
World markets  |  October 26, 2012 16:40:00

CNB on Thursday could surprise rate cut

The crown is held during the last week in almost 20 heller band 24.80 to 25.00 CZK / EUR. Compared to the end of last week but still only a few cents to the euro lost. This was mainly due to rising risk aversion in the markets due to the lingering debt problems. Markets still speculating if and when Spain officially requests for financial assistance. In addition, at the end of the week, new reports from Greece, which are certainly not pleasing, when Athens are not able to fulfill their agreed conditions to which they are committed in the request for assistance. Mood or not joined leading indicators published from Europe. Moreover, the main driving force of the euro area, Germany, apparently steam begins to occur due to slowing foreign demand for its goods.

The domestic economy news revolved primarily around the Czech National Bank meeting, which will take place on Thursday 1st November. It will be particularly interesting from this point of view, whether the central bank taking any further easing of monetary policy. We expect that, yes, however, can not be entirely ruled out that the Board will want to wait for the GDP figures for the third quarter will be published after the meeting. Will there also updated macroeconomic forecast, which should, however, compared to the previous undergo only minor changes. Should continue to show the need for further interest rate cuts. The interest rate environment is very close to zero, this tool almost exhausted, and so on as the next most effective measures to support small open economy with a healthy banking sector and the low share of foreign currency loans seem foreign exchange interventions.Overall, we assume that the central bank will reduce its main next Thursday 2W repo rate by 15 bps to 0.10%. At the same time, however, we do not believe that the current situation would now require direct intervention. Although the central bank has already verbally spoke out against the strong crown, but to intervene directly in the market and sell domestic currency, it would take a further negative shock to the euro zone, growth and deflationary risks greater appreciation of the koruna to the level of 24.00 CZK / EUR.

In addition to CNB meeting will be published leading index PMI for October. In the context of already published data from the euro area, we expect a decline in the Czech to 47.4 points from 48 points in September (consensus 47.8 points). Significantly he recently shocked Germany, our major trading partner, which would be reflected negatively on the Czech economy.

Czech koruna should continue to be under the influence of developments in global markets. In comparison with other regional currencies, however, should be less sensitive to external developments due to expectations on the CNB's decision. The prices in the market interest rate cut at the upcoming meeting of CNB is not accruing. Neither the consensus among analysts for further easing of monetary conditions does not show. Therefore, if our expectations, the central bank's decision would affect the financial markets. Crown would next week could again attack the limit of 25 CZK / EUR. The expected decision we should respond as market rates and yields. We expect for the next week decline in yields particularly at the short end of the curve.

Author: Miroslav Frayer

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