Boston, MA -- (SBWIRE) -- 10/30/2013 -- We forecast the Czech policy rate to remain at 0.05% throughout 2013 given the lack of domestic inflationary pressures. With headline consumer price inflation falling within the central bank's target range of 2.0% += 1.0% in 2013, we do not expect the Czech National Bank to loosen policy further via extraordinary measures, such as foreign exchange rate intervention.

The ouster of former prime minister Petr Necas' conservative government in June should further support our expectation for the fiscal consolidation drive of the public sector to abate in 2013 and 2014.

This should help the gradual economic recovery via less pressure on household spending. Even with fiscal targets missed, the Czech Republic is on a sustainable fiscal trajectory in the coming years due to low deficits and public debt.

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We reiterate our view that the country will continue to post modest current account deficits for the foreseeable future. The country's status as a regional safe haven will ensure that stable financial inflows continue to cover the country's external financing needs.

Major Forecast Changes

Despite the Czech Republic's worse than expected economic results in Q213, the country is poised for a modest turnaround this year as leading indicators signal that the worst may be now over. Although we have slightly revised down our forecast for growth for 2013 - from 0.2% previously to 0.0% this year, we maintain our expectation for a modest rebound of the Czech economy this year.

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