So it is official: the government wants higher taxes and fast. A medium-term fiscal strategy avoids any spending cuts but mulls several tax hikes. The finance ministry wants to rise excise taxes and value-added tax, seemingly ignoring the government public pledges not to rise excise taxes on oil. The government did not even wait for a World Bank study that is looking into the public spending and is meant to provide some spending cut proposals.
The health minister nicely illustrates what is wrong with the Czech public health system as he ordered the health insurers to raise payments to hospitals even though he does not have any power to do so and insurers anyway say that GPs are more important for the system and under-funded. The minister threatens that the state run (and dominant) insurer may not see its budget passed unless it abides to his demands…
The Czech koruna weathered the ECB intervention on Friday and barely moved vis-a-vis the euro and ended at 34.65 CZK/EUR. The intervention did not help the euro anyway, as it gained measly 2 cents to 0.88 USD/EUR.
Bond trading was unusually busy on Friday. Scheduled government bond auction pushed prices down in the early morning, as much as a trading spread on the longest government bonds. However, just prior to the auction prices jumped back with results of the aution becoming more clear for some of the biggest participants. Auction results were much better than expected, with 8 bln CZK of bonds in demand, with average yield 7.46%, and maximum 7.49%. This could be a bullish point for some period of time, however, CPI numbers released on Wednesday can change everything.
Current benchmark prices: MoF 6.75/05 99.20-50 (+15 bps), MoF 6.30/07 94.40-70 (+25 bps), MoF 6.40/10 92.60-90 (+15 bps).
(Ondrej Schneider and Dalimil Vyskovsky)