The Czech koruna kept in a tight range yesterday as the market was waiting for outcome of parliamentary confidence vote

The Czech koruna kept in a tight range of 31.60 and 31.68 yesterday. The market was waiting for outcome of parliamentary confidence vote the whole day. Thus traders ignored comments of Finance Minister Sobotka on interest rates and privatization revenues. Gross’s government finally won parliamentary approval late in the evening after the market was closed. We are doubtful that the koruna will significantly react on the approval, because the positive result was broadly expected. The new government pledge to proceed with fiscal reforms. On one hand, the cabinet may propose more ambitious reforms. However, on the other hand they will suggest several measures to improve popularity of ruling Social democrats, which could balloon budget deficit.

Today, the koruna should stay in the same range as yesterday. Government approval should have only limited and short-lived positive impact. The market may abate outcome of 15-year benchmark tender. Nevertheless, main attention will catch tomorrow’s central bank decision on interest rates.

ČSOB - Investment Research