While both the zloty and the forint posted losses on Wednesday, the Czech koruna was hovering near to EUR/CZK 25.92. None of multiple comments by CNB Board members sent breaking news to the markets. CNB governor Singer said that recent readings of macroeconomic indicators were rather anti-inflationary and reiterated that the expected a “very, very long” period of interest rates set at technical zero (i.e., at the current 0.05%). Singer’s colleague, vice-governor Tomsik, echoed Singer’s view when he said that new anti-inflationary risks had emerged. However, he also added he was not sure about the optimal policy response and softened the dovish tone of his previous assertion by saying that the koruna was weaker than it had been anticipated in the February’s inflation report. We stick to our view that likelihood of interventions against the Czech currency at current rates is small and will remain like this also after prospective negative revision of a growth outlook at the next week’s CNB Board meeting (where the new inflation forecast will be discussed).
The Czech government will be allowed to slightly raise next year’s budget expenditures owing to lower than planned interest payments on its debt. Let us recall that the ten year government bond yield hit a new all-time low last Friday and strong demand for the Czech debt was confirmed during yesterday’s auctions, both in the case of the three year and ten year bonds; the bid-to-cover ratio reached 5.75 and 3.12, respectively.