Kurzy měn: The Czech crown weakened against the European currency this week

Týdenní zpráva Komerční banky

Datum : 1.12.2000

Wage development in Q3 – was moderate. The average wage level grew by 6.1% y/y at CZK 13,228. While the price level grew by 4.0%, the real wage grew by 2.0%. But the wage development was different – in the business sector (BS) wages grew by 7.3% y/y, real wages grew by 3.2% y/y; in the non-business sector (NS) wages grew by 2.2% and real wages declined by -1.7%. After first three quarters, average wages grew by 6.3%. Consumer prices grew in the same period by 3.8%, real wages grew by 2.4%. In the BS the wage level grew by 7.6%, real wages grew by 3.7%, while in the NS the wage level grew only by 2.3% and real wages declined by –1.4%.

       Nomination of central bank governor – President V.Havel took advantage of his right and nominated a new governor, Z.Tůma. This nomination was against protests of several main political representatives. The financial markets waited for this nomination eagerly and they discounted this a few days ahead. The main reasons for the good mood are the independence and proficiency of the new governor. But the nomination came under pressure as questionable by law. The parliamentary constitution interpretation does not agree with the interpretation of the president's lawyers. The constitution says that the president may nominate members of Bank Board, but it does not say anything about nominating a governor. This conflict is having an impact on the reputation on the Czech Republic.

       The new vice-governor L.Niedermayer was formerly a member of the Bank Board. New members of the BB are M.Erbenová and J.Frait. The new members of central bank head office were criticized after they announced their readiness for higher interest rates. This information is not a surprise for economists because the present interest rate level was set up in the economy recession.

       M2 – grew by 6.5% y/y in the October. In this area the development of deposits and loans was surprising. The deposits grew by a high 4.8% y/y, while loans volume amazingly declined by a high –6.8% y/y.

       Proposition of state budget – went through the second reading in the parliament. The third reading is planned on Tuesday 5.12.2000. We expect a non-problematic approval.

       Data expected next week

       Monday 4th – The Czech National Bank will release the figures for the balance of payments in Q1-Q3.

       Friday 8th – The Czech Statistical Office will announce November figures of consumer prices.

       Friday 8th – The Ministry of Labour and Social Affairs will release the rate of registered unemployment at the end of November.

CZK/EUR

       The Czech crown weakened against the European currency this week. Whilst at the start of the week, the Czech currency was traded slightly below the level of 34.30, in the second half of the week, the level of 34.70 was tested. The weakening of the crown was mainly thanks to technical factors influenced by the strengthening euro against the US Dollar. The uncertainty on the market was getting worse during the week after information that the Czech government threw in doubt the mandate of the new governor of the Czech National Bank, Z.Tůma.

       Although the Czech National Bank did not approve intervention against the strong crown, a discussion about this problem was held. That means CNB is still watching exchange rate movements. Because there will be no important domestic macroeconomic data released, the rate will still follow developments in euro-dollar. The continuing strengthening euro against the dollar should push the Czech currency lower. For the next few days we expect the crown will be trading in a range between 34.40 and 34.70. If the level of 34.70 breaks, the crown should weaken to 35.00.

CZK/USD

       Against the US dollar, the Czech crown was moving in the opposite trend and strengthened. The jump was very dramatic, while at the start of the week the crown was traded around the level 40.70, at the end of the week the level 39.60 was tested. Working against the dollar are fears of a hard landing of the US economy, negative sentiment is still supported by the uncertainty of the result of the US presidential election and by higher volatility on the US equity market.

       For the next development on the crown-dollar market macroeconomic indicators about growth in the USA and EMU will be important. If the indicators confirm a hard landing, the US currency should weaken further. The Czech crown should profit on this development. In this case, a further strengthening of the crown to below 39.50 is possible.

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