Forget budget deficit of 20 bil.! The MoF gave its updated outlook for consolidated budgets and it showed shocking numbers: public budgets will accumulate CZK 100 bil. in deficits this year and 30 bil. in 2001. This represents more than a half of the current government budget, rather massive acceleration. However, when one-off privatization revenues are eliminated, deficits grow to whopping CZK 150 bil. this year (7.7% of GDP) and CZK 140 bil. next year (7% of GDP). Governor Tosovsky raised concern, but that probably all the Czech officials can be expected to do as the prime minister quickly shifted the focus to the debt level that is (still) well below the Maastricht limit of 60% of GDP. So, who cares?
The Czech koruna confirmed its correlation with the falling euro and remained at 35.30 CZK/EUR level. As the euro fell further, the koruna fell to 40.8 CZK/USD, its weakest level vis-a-vis the dollar for four months.
Czech bonds fell on Thursday, with the market mood changing rapidly to bearish from previous days' strict bullish. The sell-offs started with now-low-yielding corporates, sellers on long governments came quickly after. The corporates' downfall was as high as 70 bps in certain cases, governments fell just slightly less. Friday's CPI figures and government bond auction will be a deciding factor for near future market developments.
Current benchmark figures: MoF 6.75/05 101.10-40 (-20 bps), MoF 6.30/07 96.70-00 (-45 bps), MoF 6.40/10 95.70-00 (-40 bps).
(Ondrej Schneider and Dalimil Vyskovsky)