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The koruna is looking for its new equilibrium

Company: Komerční banka, a.s.

We forecast overall economic growth of 2.7% in 2017, which is our estimate for 2018 as well. Household consumption will retain its role of the most stable contributor to GDP growth. 

Inflation is set to rise to 2.3%on average this year, and we expect it to maintain this pace in 2018 on the back of growth of core prices due to a widening output gap.  

We expect that the domestic inflationary pressures will imply only one hike this year given the approximately 3% expected appreciation of the koruna versus the euro. 

Fundamentally, the Czech economy is poised for a stronger koruna. However, the massive speculative position is limiting room for a quick appreciation of the domestic currency and constitutes a risk of temporary but significant depreciation.

CZGB yields are set to gradually increase in 2017, but this trend should be mitigated by the expected pre-election drop in supply and the year-end effect of the Resolution fund.

Tags: Economics | Finance |

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