Zeman’s words today about the CNB may significantly weaken the koruna tomorrow. The president’s words about ex-governor Rusnok being offended by the appointment of Michlo as his successor can also drag down the crown

The President’s interview today
Miloš Zeman for CNN Prima News will probably cause noticeable downward pressure tomorrow, after the opening of foreign exchange markets crowns. The question is whether or to what extent it will be CNB prevent the possible weakening of the Czech currency.

Today, the President made a more detailed statement about the three newly appointed members banking board
domestic central banks, i.e. to Eva Zamrazilová, Karina Kubelková and Jan Frait (23 minutes). He indicated that all three had displayed a so-called dovish approach to the conduct of monetary policy in interviews with him prior to the appointment. “I talked to the new members banking board and I believe that they are in no mood for any drastic increases interest rates“, the president said.

At the same time, if only two of the newly appointed three economists would support the new, also “dovish” the governor Aleš Michl, in his already declared intention in May, will now leave the key for a certain period of time CNB rates at the current level, they will get “dove“ v banking board a majority of four of its members. Another current council member, Oldřich Dědek, has been voting in accordance with Michl for a long time.

At the same time, it is a question whether and to what extent it will be Central Bank – with a new one
the governor and a new one banking board in the lead – this pressure to weaken crowns
already in the coming week to defend.

Banking Board led the governor Jiří Rusnok, which in its composition ended on the last day of June, from May 11 to the end of June she intervened in order to strengthen
crowns by selling foreign exchange in the amount of 175 billion
crowns.

However, in its approach to monetary policy, Rusnok’s council mostly showed the features of a so-called “hawkish” council. So Michl and Dędek were in Rusnok’s council as “dove” in the minority. But the President’s words today may strengthen the belief among international currency traders that from now on they have banking board most “dove“. That alone would intensify the downward pressure crowns.

It is not clear whether new banking board, led from July 1 by Michl, in his willingness to defend the crown from weakening in this regard, follows up on Rusnok’s advice. If she were unwilling to defend the crown with the vehemence of Rusnok’s council, koruna would fall from the current level of around 24.75 crowns for euro above the value of 25.00, in extreme cases up to 25.30.

To Rusnok’s address at the same time President Zeman in the aforementioned TV interview, he said that he “felt insulted by the appointment of Michlo”. According to Zemana Michał Rusnok reacted to the appointment by leaving his expert team. These words may confirm to international currency traders the impression that the extent of the split between Rusnokova and Michlova banking board is noticeable. This too would contribute to intensifying the downward pressure crowns.

Lukáš Kovanda, Ph.D.

Chief Economist, Trinity Bank