The Czech government is resigning after a dispute with the finance minister
Sobotka said the resignation would allow a reformation of the cabinet with the same three-party centre-left coalition but without Babis - or lead to an early national election.
His announcement comes less than six months ahead of the next parliamentary elections, which are scheduled for October.The Czech koruna dipped by about 0.4% in the immediate aftermath of the announcement, but has since retraced its losses. It is little changed at 24.6510 per US dollar as of 9:52 a.m. ET.
"It seems unlikely that this political realignment will have a significant impact on the economy or financial markets. The stability of Czech politics over the past three years has been the exception rather than the rule," William Jackson, senior emerging markets economist at Capital Economics, said in a note. "Prior to that, governments changed frequently. But that was never marked by sell-offs in the markets or sharp swings in the direction of policymaking."
"And unlike in other emerging markets where political instability is a concern, there are no major fiscal issues to tackle in the Czech Republic that might otherwise require a stable government," he added. "Indeed, if anything fiscal policy has been too tight."
The Czech Republic has seen the turnover of six cabinets in the past decade, according to Bloomberg data. But it has seen three years of relative stability under Sobotka's coalition government, according to the BBC.