Investiční bankovnictví (Komerční banka)
World markets  |  October 31, 2012 18:00:00

Czech koruna weakened before the CNB

Czech koruna on Wednesday blamed the loss when he moved from morning levels around 25.00 CZK / EUR 25.10 above the surface. Weaken the Polish zloty, the only currency in the region remained without losses and the Hungarian forint. Crown published today helped PMI index, which decreased further contraction in the band. Prospects for the Czech industry are favorable and indicate also car registration abroad or declining German orders. On the negative developments on the crown, however, apparently signed and approaching CNB meeting, since the central bankers threatened further verbal intervention (or markets will closely monitor any reference to the exchange rate and foreign exchange interventions).
Czech National Bank at its meeting in September cut its key 2W repo rate by 25 bps to 0.25%. The Lombard rate was reduced to 0.75% and the discount rate to 0.10%. Further reductions in rates could come at tomorrow's meeting (decision will be announced at 13:00 and press conference starts at 14:30). One can not exclude the possibility that the Board will want to wait for the GDP figures for the third quarter will be released after this meeting (Nov. 15 preliminary estimate and the final data structure, Dec. 7). CNB also publish its new forecast, which probably will undergo rather marginal changes. Should continue to show the need for further interest rate cuts.Since the rate approached zero level, central bankers began strongly thinking about other tools that would be needed in the event of further monetary policy stimulus. In a small open economy with a healthy banking sector and the low share of foreign currency loans seem to be the most effective foreign exchange interventions. Verbally already CNB intervenes, direct foreign intervention in our view, will need to in the event of a negative shock in the euro area, growth and deflationary risks in the event of a significant appreciation of the koruna to the level of 24.00 CZK / EUR. From a purely technical perspective, our model shows that the current outlook for the external environment, the average rate of 25.50 CZK / EUR in 2013 sufficient monetary stimulus.
Ministry of Finance today released its new forecast. View of the dynamics of this year's GDP was worsened by 0.5 percentage points to -1.0% and the outlook for next year by 0.3 percentage points to 0.7%. A significant downward revision recorded household consumption, which was probably due to negative surprises arising from data on GDP for the second quarter. Our forecast allows for the development of improved slightly during the rest of the year, but we are pessimistic about next year (we expect GDP growth of only 0.3%). If the new draft budget for next year will be based on this forecast, there is a lower tax choice. For example, Deputy Finance Minister L. Minčič noted that 0.3 percentage points of GDP means the shortfall in tax revenues around ten billion (the total impact on the budget should be even more pronounced).

Author: Jiri Skop

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