The Czech koruna shot up to a fresh oneyear
high. Initially the market was rather
calm, but since mid-session the EUR/CZK
drop in two waves to 31.200. A firming trend
prevails because, there is a strong demand
for korunas both from Prague and London.
People bet that upcoming IPO of drug maker
Zentiva on Prague stock exchange might
lure some foreign capital. Moreover,
eurobond issues of Czech companies and
government bring euros on the market as well.
However, the central bank gets more and
more nervous. Vice governor Ludek
Niedermayer repeated his doubt on
reasonability of the recent koruna gains
yesterday. Moreover, he went even deeper,
when he added that firming koruna helps to
keep inflation in check and might offset some need for interest rate hikes.
Today’s key inflation figure was ignored by
the koruna. CPI rose only by 0.4 pct in May,
well below market consensus. It is quite
strong signal for the central bank not to hike
interest rates soon and to continue wait-andsee
policy. Strong construction activity in
April (62.4 pct y/y) released today should be
regarded as one-off fluctuation caused by a
VAT hike. Summing up, today’s data should
bring imminent rate hike expectation down.
They should also somewhat impede the koruna firming.
ČSOB - Investment Research