Czech Republic
The Czech trade balance continues to show huge surpluses
Hungary
Industrial production back in positive territory in the third quarter
Poland
Polish inflation in the focus this week
The Week Ahead
Will Czech and Hungarian GDP readings mark the bottom of the business cycle?
Overview
CNB stays on hold and paves the way for a strong koruna
The Czech National Bank has never before seen its Governor and Deputy Governor be outvoted in the CNB Board twice in consecutive meetings; While we do not yet know the exact voting results of Thursday’s CNB Board meeting (the exact result will be available in a week), it is quite likely that the four votes (out of seven) that decided to leave the CNB’s repo rate unchanged included neither the vote of Governor Tůma nor that of the influential Deputy Governor Singer. The group that preferred rate stability outvoted the Governor, even though the CNB’s new inflation forecast actually envisaged a repo rate cut, because its assumptions included a fall in the three-month Pribor, from today’s 1.8% to 1.1% (or to 1.2%) in this quarter of the year, according to the central bank’s projection.
Thus the CNB rates will continue to be above the rates of the ECB as well as the Fed after yesterday’s meeting, and this will increase the attractiveness of the koruna against both the euro and the dollar. Therefore we believe that there is a great risk that the koruna may again hit the levels where it had settled before the verbal interventions by CNB Governor Tůma and Deputy Governor Singer. Hence the unpredictable exchange rate of the Czech currency will be the primary factor that will, just like last Thursday, again determine, in the middle of December, whether the bottom of the CNB’s repo rate will be 1.25% or 1.0%. Obviously, however, with a strengthening global recovery the window of opportunity for a final cut slowly closes.
