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Czech inflation falls again in Dec

Czech inflation falls again in Dec

BEIJING: China’s stock market woes had only small impact on regional FX markets yesterday. Both the forint and the zloty weakened on Monday but their losses were driven by other factors, especially in the case of the former currency.

The forint got under pressure following announcement that Márton Nagy, a vicepresident of the Hungarian central bank, would hold a press conference at 2 PM today focusing on planned monetary policy measures.

According to rumours, the MNB would take a “big step” forward in unconventional easing – with obvious negative implication for the forint. In contrast, the scheduled Nagy´s meeting with journalist supported government bonds; their yield curve slightly steepened as the short-end dropped by 7 bps while the long-end rose only by 3 bps.

The fresh Czech inflation data released this morning have shown consumer inflation still dwelling deep below central bank’s target. In year-on-year terms, prices grew only 0.1% in December, mainly due to persistently low commodity prices (and most notably among them, oil prices).

The news signals further enhancement to the purchasing power of Czech households which has been conveniently mirrored by the second set of data published today, or the November retail sales. Evidently, households’ consumption had been among the most important pillars of economic growth in the fourth quarter 2015.

We expect the Czech central bank will not need to adopt any additional easing measures by the end of 2016, except perhaps for pushing its exit from the intervention regime further into 2017 if necessary.