Czech Republic’s inflation unlikely to reach target before early 2017

Czech Republic’s economic growth accelerated substantially and was mainly fuelled by the manufacturing sector. Nevertheless, the economy’s most of the sectors indicate a positive trend. Czech is witnessing growth in investment by public and private sectors, while a major boost is been given by private consumption that is helped by rising employment and real wages. The nation is unlikely to have any economic reforms or alterations, except doing away with the pension reform and setting up of the electronic registration of sales, according to KBC Market Research.

Meanwhile, inflation in the country is unlikely to reach the target rate before early 2017, noted KBC Market Research. Furthermore, inflation is not expected to diverge afterwards either. The central bank has stretched out its commitment of exchange rate until H1 2017. Meanwhile, the chance of the CNB bringing interest rates in the negative territory has increased. However, the central bank is still unlikely to bring rates in negative territory. The CNB will proceed with negative official rates only if the ECB lower’s rate significantly and if the CNB continues with its large monthly FX intervention, said KBC Market Research.

Meanwhile, the CZK has been stronger recently due to stronger economic growth, capital and current account surpluses and the current QE program of the euro area.

“With regard to the inflation outlook and ECB’s policy, we anticipate an exit from the fx regime in the first quarter of 2017”, added KBC Market Research.

However, the EUR/CZK is expected to be 27 in the following months, noted KBC Market Research. The Central Europe faces negative risks from the current disturbance in the Chinese market. Nevertheless, the effect on CZK is likely to be limited.