Czech koruna weakens as CNB's negative rates loom

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Czech koruna weakens as CNB’s negative rates loom

Macro weekly highlights: GDP and January’s inflation

The Czech koruna weakened on Friday as CNB’s vice-governor Tomsik said in his discussion with the analysts that the probability of negative interest rates has increased. Tomsik said that the CNB board ‘seriously discussed’ the implementation of negative interest rates on the last meeting. He added that although there was no vote on interest rate cut on Thursday, he did not rule out such a vote in the future.
This week, all Central European countries will release major macroeconomic data this week against a backdrop of important events abroad, which will be accompanied by an address delivered by Fed Chief Yellen before Congress and by GDP figures in the euro area. In addition to January’s inflation, these releases will include economic growth figures in Hungary and Poland.
Regional year-on-year inflation should continue to rise (in January), although its rise will not be at all as visible as expected only recently. The favourable baseline index will be curbed by another drop in fuel prices, as already shown by figures from the euro area, after all. Regarding specifically Poland’s inflation, it will be interesting to see whether persisting deflation will be influenced by the weakened zloty (which weakened by 2.5% against the euro in January).
Growth in Poland and Hungary should remain fairly high. Private consumption should significantly contribute to growth in both countries, as we have already seen in strong retail sales. Therefore, for the year as a whole, both Hungarian and Polish growth should clearly exceed that of the euro area as well as Germany, thus reviving the real convergence story for Central European economies. Let us add that the Czech economy, which will report its GDP data for the fourth quarter and the whole of 2015 as late as on February 16, should stand out even better in this regard.

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