The Czech koruna stays below 25.00 EUR/CZK so far, but may retest that barrier as rest of the region can stay under pressure due to strengthening US dollar and growing tensions between Hungarian government and the IMF.
The main attraction of the week should be the NBH and CNB meeting. We expect interest rate cut in both countries. In the Czech Republic, the rates should decline to as low as 0.1%. Although some central bank members did not exclude the rates declining even to zero, there are currently still some legal objections against that step. The koruna may be especially nervous ahead of the comments about the possibility of FX interventions. Quite surprisingly, some swing voters (e.g. Kamil Janacek) have recently suggested that they were not afraid of interventions against the currency. Nevertheless, we believe that the interventions are unlikely to occur until the koruna hits approximately 24.00 EUR/CZK, where it will start to diverge from the fundamental range that we have predicted. In its forecast, the CNB itself anticipates that, under the extreme scenario, the koruna is unlikely to strengthen beyond 24.00 EUR/CZK by the end of this year, and 23.70 in the first quarter of 2013.
Meanwhile, the IMF’s representative in Hungary stated that the government’s actions are against the IMF’s recommendations. She added that there is still no date to continue the negotiations. Mihály Varga – Hungary’s Chief Negotiator – said that the talks did not stop and the EU and the IMF will decide on 7th November whether to continue the negotiations. The government announced that it will take over more than HUF 600 billion worth of debt from more than 2 thousand local governments. The Prime Minister hinted that the government may plan to renegotiate the debt.