The Cabinet had its last meeting before it goes for a summer holiday. It approved a splurge of proposals. Some of them welcome: foreigners will be less bullied on borders. Some of them expected: the Cabinet refused a referendum on whether a nuclear plant should be activated. Some of them telling: the Cabinet welcomed a proposal to allow tax deductions for Internet users, but refused to send the bill to Parliament. Some of them worrying: the Cabinet will financially support (CZK 1.7 bil. in soft loans) the private (and profitable) steel firm as it was negatively influenced by CZK 15 bil. bailouts to its state-owned competitors.
Nothing seems able to rock the Czech koruna. It remains rock solid against the euro at around 35.6 CZK/EUR level. As the euro gained marginally vis-a-vis the dollar, the koruna strengthened to 37.8 CZK/USD. The market may become more nervous today, as the central bank board convenes to discuss an inflation report. We do not expect, though, a change in interest rates. A verbal intervention against the koruna is well possible.
Czech bond market was very quiet again on Wednesday, even quiter than previous days. The volume traded that day was again very close to zero, only the end of the day brought some interest on FRN issues. Market seems to be waiting for Thursday's CNB board meeting, as we mentioned previously, the prices are almost the same as previous closings, with only little differences. Tomorrow could even be as quiet as today, however, any CNB action can give the market a direction. FX market intervention, which seems to be most likely, would surely push the prices down again.
Current benchmark prices: MoF 6.75/05 99.70-00 (unchanged), MoF 6.30/07 96.15-45 (+5 bps), MoF 6.40/10 95.70-00 (unchanged).
(Ondrej Schneider and Dalimil Vyskovsky)