Even though volumes increased on the Czech bond market yesterday, bond prices were only little changed yesterday. Interestingly, the Ministry for a Regional Development announced that regulated prices of rents will be increased by 19.2 % instead of previously indicated 14 % on January 2007. Obviously this will lift the headline inflation higher at the begging of the next year. We estimate that a negative effect on inflation should be around 0.6 percentage points. Hence, the medium-term inflation outlook deteriorates somehow, which we have to take into account. The domestic market already awaits CNB’s Bank Board meeting scheduled for tomorrow. A small part of the market bets on a rate or some hawkish comment at least. We continue to think that these expectations are not realistic, though we do not rule out that CNB governor Tuma might deliver some cautious inflation warnings.
(CSOB - Investment research)