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extend asset purchases, but at half the volume from January until at least September next year will add cautiousness to Czech policy tightening by mid-2018, according to Rusnok's comments. The ECB’s approach may preserve demand for the
“Foreign buyers have continued to pile into Czech domestic government bonds”
higher-yielding koruna for longer and consequently reduce the demand for rate hikes.
With Czech economic output growing by 4.7% y/y in the second quarter, wage settlements, amid the EU's lowest level of unemployment, are on the rise and the inflation rate is
starting to feel the heat. Inflation rose by 0.2% to 2.7% y/y in September, although some analysts say it may have peaked at this level for this year. A Reuters poll anticipates another CNB rate hike in the first quarter of 2018 after a pause in December.
The koruna gained by 5.6% to the euro since the central bank dropped its cap on the exchange rate in April. Just after the rates decision, it reached its highest level since the intervention was brought in in late 2013, edging up to CZK25.530/euro.
Foreign buyers have continued to pile into Czech domestic government bonds – according to the finance ministry’s latest data issued on October 31, non-Czech holdings of these bonds moved up to a new high of 51.35% in September, almost double the 28.36% share seen a year ago and a substantial advance on August’s 46.12%. A surge of foreign investors
into the bonds was also recorded prior to the central bank’s removal of the koruna cap in April.
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