The Czech koruna hovered in rather tight range yesterday

The Czech koruna hovered in rather tight range of EUR/CZK 30.58-30.67 yesterday. The market was quiet and ignored all incentives. Nevertheless, all central banker words and stagnation of producer prices in November were in favour of our base scenario of stable rates in at least 6 months. Both vice-governor Niedermayer and CNB board member Racocha said that the strong koruna made any rate hike difficult. They added that even the economy didn’t need monetary tightening. The central bank may seek to stem the koruna's 5.8 percent gain against the euro this year by delaying interest rate increases rather than selling the currency, said Niedermayer. However, he warned the market that there was no reason for strengthening of the koruna after the government decided to sell Cesky Telecom to strategic partner. Moreover he regarded dividend outflow as serious and rising problem of Czech current account. Today we do not see any reason why the quiet atmosphere on the market should change. The Parliament will finally agree state budget for the next year with deficit CZK 83.6 bn. Nevertheless, it should not have any impact on the markets.

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