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Coalition Meeting Ends With Compromise But Tensions Over Euro Remain

CZECHIA
  • The ruling coalition decided that economist Petr Zahradnik will not be appointed a special representative for the entry into the ERM II system, albeit he will continue to serve as European Affairs Minister Martin Dvorak's adviser. In exchange, Prime Minister Petr Fiala pledged to ask various advisory bodies to issue their opinions on entering the eurozone by October and said that the Cabinet will then decide on further course of action thereafter. The unilateral nomination for Zahradnik revived tensions over the adoption of the euro among coalition partners, prompting them to call an emergency meeting last night. Hospodarske Noviny published a source report noting that the meeting was "not friendly at all," with coalition representatives airing various grievances. Zahradnik told Seznam Zpravy that in his view there is a 75% chance that Czechia will eventually adopt the euro. As things stand, Fiala's ODS party remains opposed to the idea, but minor liberal coalition partners keep pushing for advancing along that path, with President Petr Pavel also expressing his support.
  • The addition of bets on accelerated monetary loosening by the Czech National Bank (CNB) exerted fresh pressure on the koruna over the past few days, briefly pushing EUR/CZK through the psychologically important 25.0 figure. EUR/CZK overnight implied volatility spiked higher to its best levels since December 21 on the eve of the decision, which is seen as a close call between a 25bp/50bp rate cut. Click here to see our preview.
  • Czechia's ex-auto retail sales rose 1.6% Y/Y in December, topping the consensus forecast of +0.7%.
  • The CNB will release data on Czechia's foreign reserves at 09:00GMT/10:00CET.
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