Czech Republic
Czech National Bank: The risks for interest rates are on the downside
Hungary
New PM candidate Bajnai is coming with 500bn fiscal package while inflation worries rise
Poland
NBP cuts rates by 25 bps, as expected
The Week Ahead
Watch the final result of the Hungarian C/A balance for 2008
Overview
Re-coupling of the Czech Republic and Hungary
It seemed for some time that Czech economic policy makers would succeed in persuading foreign investors and media that they should not lump the Czech economy together with the Hungarian. However, then, in a critical moment, the Czech government was brought down, thus largely thwarting these efforts. The resignation of the Czech Prime Minister, and consequently upped chances of an early election, came only a few days after the Hungarian Prime Minister Gyurscány had offered to step down. In other words, as political uncertainty has risen in both Prague and Budapest, the Czech Republic risk to be again lumped together with Hungary, at least for some time.
In addition, the political uncertainty occurs at an inconvenient time for the Czech Republic, for not only it is facing a recession, it is also presiding over the EU until June. And these occur at times that require a fully operational Cabinet, which the country will lack, due to the current distribution of political power. Investors will only tolerate the Czech Republic’s affected reputation if they see light at the end of the political tunnel soon. Such a light would be a firm date for an early election broadly supported by the majority of parliamentarians. If a date is announced soon, the political uncertainty will not significantly affect the Czech koruna and bonds. Otherwise, the Czech koruna as well as fixed income instruments may underperform their counterparts in emerging markets for some time.
