Czech Republic - Janacek from CNB sends clear hawkish signal
The Czech koruna is testing 55-day moving average with help of a weakening US dollar. The end of current political uncertainty could also come as a relief for the koruna, but domestic factors are no important short-term driver of the Czech currency. An addendum to the coalition agreement signed yesterday calls for linking the income-tax law this summer to a vote of confidence in Parliament. Passage of the law is necessary for imposing a tax on gambling as of next year, which has become one of top priorities of the smallest coalition party VV. The addendum also calls for the coalition partners to act jointly in passing other reforms, including the unification of the two VAT rates at 17.5% as of 2013. Although the government is probably going to remain unstable, the agreement is positive in terms of budget austerity measures.
This morning, CNB’s Board member Kamil Janacek reaffirmed himself as a hawk. He said that if the European Central Bank raises its key interest rate to 1.5%, he will personally consider the interest-rate differential with the CR (who’s key rate is 0.75%) to pose a risk to the crown’s exchange rate. The main risk is in the potential volatility of the crown, he said. He also said that the Czech recession is over and that it is becoming a luxury to “dope” the economy with low interest rates. Janacek’s comments might support the recent development in the Czech fixed-income market as rates and yields have been moving higher this week.
On Thursday, the forint entered calmer waters. The Hungarian currency was a major beneficiary of the return of risk appetite. Yesterday’s data (large Q1 current account surplus but lower than expected producer prices) had no lasting impact on trading. The forint was still mostly driven by global sentiment on risk. EUR/HUF reached a new correction low below the 265 mark as US equities succeeded a new up-leg. This morning, the Hungarian PMI rose from 52.4 to 54.4. The forint is again testing the recent highs against the euro in the 264.50 area. Global sentiment on risk will remain the key factor for trading in this cross rate, but the domestic news flow remains supportive, too.
The Polish zloty outperformed the other regional currencies on Thursday and posted negligible gains. The EUR/PLN cross rate remained calm during the session and closed below 4 EUR/PLN level.
Regarding yesterday events, June’s inflation expectations slightly decreased (by 0.1 basis point to 4.2%). Clearly, the figure was no surprise for the market as bets on a rate hike remained more or less unchanged. Today, a comment made by the Monetary Policy Council member Jerzy Hausner was not surprising either as he reiterated his view that current monetary policy stance was not too restrictive given the fact that interest rates had been lower than the rate of inflation.
We expect the zloty to perform well in the sessions ahead. Even though the current account deficit was revised higher, the impact on GDP should be zero. This fact hand in hand with lower risk aversion could play in favor of the polish currency.