The Czech National Bank released its updated forecasts yesterday. The bank slashed its growth 2002 expectations from (unrealistic high) 4.5% to 3.9%. Growth may go as low as to 3.0% if Germany economy remain pathetic, the CNB said. Significantly for monetary policy outlook, the CNB also cut its inflation expectations: 3.4-4.7% in a year time and to surprisingly low 2.3-3.7% in the early 2003. This should open room for rather aggressive easing by the CNB, as these inflation numbers lie comfortably within its inflation targets.
The finance ministry has another magnitude of problems: the state budget deficit widened to CZK 36bn as of November 1 However, the finance ministry's numbers looked more fishy and cooked by the day. A source at the ministry expects the total deficit for 2001 to reach CZK 97bn, while the official estimate is CZK 85bn. A billion here, billion here and we're talking big money…
Bonds gained yesterday, as the central bank's comments indicated easing of monetary policy and fears of huge additional bond issues by the government subsided, for now at least. The GBIX index gained almost a percentage point, the longest 15Y bond gaining 355 points, its yield falling to 5.38%.
The koruna strengthened yesterday, as usually, to 33.58 CZK/EUR and 37.10 CZK/USD. No specific reasons could be found. The CNB's governor Tůma nevertheless declared the last week's intervention against the koruna a success.
(Ondrej Schneider)