KBC Market Research Desk
KBC Bank
President Zeman has once again confronted the Czech National Bank (CNB). On Thursday, he reiterated his objections to the artificially undervalued koruna and said that – after the term of current governor, Mr. Singer, comes to an end in July 2016 – he will appoint a new governor (and, in general, such board members) who will rectify the missteps. In a response, the koruna experienced its strongest gains in the last two weeks and got very close to the EUR/CZK 27.25 level.
Although the president's stance towards the CNB’s monetary policy has already been well known, the criticism was sharper this time. Furthermore, Mr. Zeman came with the comments at the time when the CE currencies generally trade on the positive note, mainly thanks to the start of the massive ECB´s QE programme. QE expectations have already pushed yields and rates in the major euro zone markets to a negative territory – 2-year government bond yields of 7 EMU members including Germany and France already are negative. Hunt for the yield attracted attention to currencies that offer any kind of reasonable positive yield such as the Polish zloty. In that light, that is no surprise the Polish zloty had responded positively to the strong NBP commitment to end the easing cycle earlier this week. Investors also look at the currencies that are artificially undervalued - such as the Czech or Danish koruna. They can hardly get higher yields but can bet on currencies’ appreciation if the intervention regimes were (for some reason) unexpectedly left.
Banning the intervention regime is however not being on the table in the Czech Republic right now. The commitment of the CNB Board, despite the comments of the President, continues to be strong. Furthermore, the changes in the bank Board will take place only gradually and a likely candidate for the new governor, Jiří Rusnok, generally supports the EUR/CZK floor. On the other hand, a combination of lower political backing of intervention regime and ECB´s QE may lead the foreign investors to test the 27.00 EUR/CZK floor.
This non-exhaustive information is based on short-term forecasts for expected developments on the financial markets. KBC Bank cannot guarantee that these forecasts will materialize and cannot be held liable in any way for direct or consequential loss arising from any use of this document or its content. The document is not intended as personalized investment advice and does not constitute a recommendation to buy, sell or hold investments described herein. Although information has been obtained from and is based upon sources KBC believes to be reliable, KBC does not guarantee the accuracy of this information, which may be incomplete or condensed. All opinions and estimates constitute a KBC judgment as of the data of the report and are subject to change without notice.
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