Currency Forecast - Koruna Cap To Remain In Place - SEPT 2015

BMI View: Despite calls from President Milos Zeman to remove the peg, we expect the CNB to defend it until end-2016.

Short-Term Outlook (3-6 Months):

Upside pressure on the Czech koruna has intensified since late July, partially due to the rapidly improving growth outlook and partially due to the currency's regional safe haven status, with China's deteriorating macro outlook dampening appetite for the Emerging market asset class across the board. It is possible that the safe haven inflows have come to reflect market speculations against the Czech National Bank's (CNB) resolve to maintain the cap and rising bets that it would follow in the Swiss National Bank's (SNB) footsteps in abandoning the cap on the Swiss franc earlier in 2015. Adding further momentum to such speculations were calls made by Czech President Milos Zeman, alongside the heads of both houses of parliament, on August 11 for the CNB to abandon its cap policy. We believe that such a course of action for the CNB is highly unlikely and maintain our forecast for the koruna cap to remain in place until the end-2016 in line with the bank's forward guidance.

Markets Testing Central Bank Resolve
Czech Republic - CZK/EUR Exchange Rate
Source: Bloomberg

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