Czech inflation spiked in the last two months, hitting the central bank’s target for the first time since 2012, heaping, as The FT reports, additional pressure on the country’s soon to be expired currency regime with the euro.
Along with on-target inflation, the Czech Republic also boasts the lowest rates of unemployment anywhere in the EU at 3.7 per cent.
Having kept an upper limit on the koruna in a bid to control inflation over the last three years, the central bank has been forced to buy up foreign currency at a faster pace to keep the regime steady. The koruna has been kept at around CZK27 against the euro since 2013, but policymakers have warned they are likely to scrap the regime at some point this year.
So Is a 'Czexit' on the cards?
Analysts at ING forecasting an end to the managed exchange rate system around April or May this year...
“It shows that the market is positioning against the CNB floor more intensively, as accelerating inflation is increasing the odds of the approaching exit”, said Jakub Seidler at the Dutch bank.
Mr Seidler now expects the currency regime to be scrapped around April or May, with annual inflation forecast to climb from 1.5 per cent to 1.9 per cent in December – close to the central bank’s 2 per cent target.
“If the intensity of interventions saw during the first days in January continues in the first quarter of 2017, total interventions in the quarter might easily overcome the whole 2016-levels”, he added.
And judging by the forward market, traders seem to agree...
As a reminder, during the summer of last year, the outspoken President Milos Zeman ("prepare for a Muslim super-holocaust") says his citizens must be able to "express themselves" on E.U. and NATO membership.
The Czech Republic’s President Milos Zeman has called for a referendum on the country’s membership of both the European Union and NATO, the latest example of fallout from Britain’s vote to leave the E.U.
Zeman says that he personally backs the country remaining in both organizations, but said on Czech Radio that he “will do everything for [Czechs] to have a referendum and be able to express themselves. And the same goes for a NATO exit too,” Reuters reports.