The Czech koruna initially got under weakening pressure together with other CE currencies. However, it quickly bounced back touching EUR/CZK 29.37. It climbed to 29.24 by noon and hovered at that level for the rest of the day. Many exporters try to hedge their future euro receipts now, therefore any weakening of the koruna inspire significant euro selling. The IMF criticized the Czech government on its fiscal plans yesterday. It said that the country missed an opportunity to improve its public finances. The IMF forecasts that the general government deficit will significantly undershoot initial target of 5 % of GDP in 2005. The deficit may came at 2.8 % on cash basis, slightly better than in previous year when it was 3 % of GDP. Nevertheless, outlays in amount of 1 % will be transferred into reserves and spend later next year. Thus it may balloon the next year deficit which the government set to 4 % GDP. The IMF correctly described the current situation in public finances, but we expect slightly higher deficit this year, because the Finance Ministry tries hard to expand deficit. Also the reserves is not a real problem, because the Ministries create each year roughly same amount of reserves.
Today the calendar is e mpty again. The koruna may stay range-bound again. Traders might wait for Thursday, when the CNB decides on monetary policy.
(CSOB - Investment research)