The rebound of the international stock markets and the euro helped Central European currencies to wipe off their Monday’s loses. Today the attention will be mainly on the meetings of the Czech and Polish
central banks. While the NBP is expected to cut rates by 25 bps to 3.75 %, the Czech base rate is technically at zero, thus comments of board members will be more interesting.
Certain market participants are afraid of interventions, i.e., the central bank endorsing the exchange rate targeting policy. Nevertheless, we believe that these speculations will not be borne out. The new forecast, which will be available to the CNB Board, is likely to confirm a not very optimistic outlook for the economy, but we believe that the koruna is currently not too strong to justify forex intervention. In addition CNB should eagerly await January’s inflation data, which will be affected by the increased VAT, but this data will not yet be available at the time of the meeting CNB Board more likely upgrades its inflation targeting with a ‘more binding opinion’ on the exchange rate. However, this will not be a fixed target for the exchange rate; it will be a moving exchange rate opinion, which should change with every forecast. Thus the CNB will not even set, a priori, any bounds for the fluctuations around those forecasted exchange rate values. If that is the case, we might see some profit taking on the EUR/CZK, as there has been several long EUR/CZK positions being built recently.