Research (Conseq)
Currencies  |  February 20, 2013 14:34:25

CNB in ??our opinion on direct foreign exchange interventions accedes

Minutes of the last meeting of the Bank Board of the Czech National Bank, after which CNB has left rates unchanged setting of monetary policy, showed that the perception of the needs of foreign exchange interventions among members of the board fell with market weakening crown above 25.70 CZK / EUR in January. Board had at its meeting an updated quarterly macroeconomic forecast, which estimated a slightly reduced performance domestic economy this year (-0.3% under the influence of subdued domestic demand in terms of ongoing fiscal consolidation), however, against an estimate of increased growth in the following year to 2.1%.Turnover for growth, according to the CNB should be seen in the second half of this year and should be driven by growth in external demand.

We believe that after last year's recession, we will see slight growth this year, and that somewhere in the range of 1 - 1.5%. Inflation is estimated by the CNB in this year's move to or slightly above 2% (medium-term inflation target of the central bank), but more important for decision-making board of any foreign intervention program development will be adjusted, the monetary inflation.It is now around 1.5%, while the CNB forecast expected in the coming months with a decrease in the level of 1% in the second half of the year with a renewed moderate growth, however, is not expected to achieve the level of 2% in the monetary policy horizon (1.5 years).  

Actual development adjusted for inflation, the CNB's key decision - if the recession is deeper because of the domestic economy and lower global inflation pressures loomed its decrease below 1%, the CNB would be very likely in response launched the foreign exchange interventions, so as to weaken the exchange rate of the koruna.

However, we expect that this scenario should fulfill. First, in the coming quarters, we expect cyclical turnover of domestic economy, fueled by the increasing activity of first export-oriented industries, corporate investment, and subsequently supplemented eventually rising end consumption. That will encourage negative real interest rates (reduce the incentive to save) and later renewed wage growth. Finally, consumption will also encourage the expiration of the negative fiscal impulse in relation to the consolidation of public budgets.

Thus, if exchange rate of the Czech currency in the coming months will not strengthen significantly, say to the level of 24 crowns per euro, the Czech National Bank, in our opinion on direct foreign exchange interventions and will not accept more than the verbal warning. However, even if they have the CNB financial markets relatively great weight.


Ondřej Matuška

Portfolio Manager

Conseq Investment Management as

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