The Czech koruna drop on back of negative
sentiment on region yesterday. Initially the
unit hovered around the level EUR/CZK
31.65, Monday’s close, but it started to
weaken in the afternoon. The most
influential were rumors that S&P would
change rating of Poland and Hungary. The
rumor partly materialize in case of Hungary.
Disputes about a next year budget could
have struck the koruna as well. Junior
partners in the ruling coalition do not agree
with raising of expenditures. In reality, it is
only play for voters and we expect accord on
the budget in short time. The Finance
Ministry suggest the budget deficit of CZK
94 bn or 3.3 pct of GDP, the public sector
deficit finance minister Sobotka predicts at
4.2 pct of GDP in 2005. Therefore the
koruna touched EUR/CZK 31.83 and closed
the session only little stronger at 31.80. The
unit almost ignored CNB Minutes from the
last monetary policy setting board meeting
and other events on political scene.
Today, the calendar is full. Above all,
inflation figures for August could move the
market. Consumer prices were flat in August
but annual inflation again rose to 3.4 pct.
That’s argument against necessity of
immanent interest rate hike. Thus, it could
be slightly negative for the koruna but the
market showed only minimal reaction.
Moreover Poland will release GDP growth
which could improve the sentiment in the
region. Finally, 10-year benchmark tender
also could give the direction to the currency market. All at all, we see some room for
strengthening of the koruna today.
ČSOB - Investment Research