Czech Republic unlikely to take any steps to adopt euro in near future, says KBC

The Czech economy is gradually slowing down in 2016 after registering significantly strong growth rate in 2015. Exports and household consumption are mainly driving the Czech economy’s demand side. On the contrary, investment activity has slowed considerably. In spite of acceleration in wage growth and a record-breaking employment, Czech inflation continues to be quite below the Czech National Bank’s target rate.

Any significant political and economic reforms or changes except the unified electronic records of sales are unlikely to be implemented by the current government. Similarly, the Czech Republic is not expected to undertake any measures to adopt the euro in the foreseeable future, said KBC in a research note.

Czech inflation forecast still envisages reaching the target rate in the second half of next year, thereby freeing the central bank’s hands to discontinue its exchange rate system, with the Czech National Bank Board anticipating the discontinuation in the middle of 2017. Meanwhile, the CNB expects considerable rise in short-term market rates; however, this is quite unlikely.

“Moreover, when timing the departure from its interventions and rate hikes, the CNB will also have to take the ECB policy into account to avoid unnecessarily triggering excessive inflows of speculative capital”, added KBC.