The Czech National Bank (CNB) reduced interest rates by 25bp to 4.25%, as anticipated. The CNB’s press conference offered little new information, disregarding the Federal Reserve’s decision and refraining from commenting on market pricing, ING’s FX strategist Frantisek Taborsky notes.
EUR/CZK to decline in the short term
“Of course, the Fed rate cut and dovish global outlook will be visible in the November forecast in a downward revision of the rates path. On the other hand, the next catalyst is September inflation, which only mechanically points to 2.6% based on the previous deviation from the CNB forecast.”
“That's also what some of our numbers show, despite the drop in fuel and energy prices, which would bring the CNB to an uncomfortable level given another base effect jump in December, raising the chance of inflation returning to 3%. This is why our economists expect a pause in December.”
“From that perspective, we face a hawkish risk over the next two months, while the market leans dovish in our opinion. Paying CZK rates seems challenging in the current environment, but an inflation print could change that. Given this hawkish stance, we still anticipate EUR/CZK to decline in the short term, as suggested by the current rates differential.”
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