The CNB will ease well ahead of the ECB and Fed

If we look at Central European forex markets, we can obtain a brief view of the main economic and political events that have happened in the region recently and are going to happen there within the next few days.

At first glance, the depreciation of the Czech koruna against the backdrop of the appreciation of the forint catches the eye.The appreciation of the Hungarian currency is clearly due to the positive newsabout the progress in talks between the Hungarian government and the IMF as well as the EU. Above all, the Hungarian government has adopted a much more constructive attitude to the objections raised to its changes in the Central Bank Act, and thus the country is again slightly closer to the stand-by loan to help Hungary overcome its difficult repayment schedule. More good news for Hungarian assets was the fact that Ecofin had reviewed its decision to halt (starting from 2013) transfers from EU Cohesion Funds.

By contrast, the Czech koruna is troubled not only by the lingering euro-crisis but also by the dovish position of the central bank, with the Czech National Bank likely to cut its base rate by 25 basis points to a new all-time low of 0.50% at its forthcoming meeting. Two CNB Board members already voted for a rate cut the last time, while more calls for easing the monetary policy have come from the CNB since. The central bank’s position is facilitated by the fact that inflation is lower than envisaged by the current forecast, while the economic downturn is faster. Thus the CNB is likely to ease its monetary policy earlier than both the ECB and the Fed, and this is evidently not something the Czech currency would like.