Czech Koruna: CZK remains under pressure despite CNB rate rise – Commerzbank

With inflation likely to rise faster than CNB interest rates, real rates are set to remain low or negative, keeping the Koruna under pressure as a weak Euro adds to the headwinds. Commerzbank’s Tatha Ghose expects the Czech National Bank to raise rates by a fully priced-in 25 bp to 4.00%, although he emphasises that the broader tightening path will provide the key signal.

Low real rates to keep pressure on the Koruna

"The Czech National Bank (CNB) is unanimously expected to raise its policy rate by 25bp to 4.00% this afternoon – such an outcome is fully priced-in. The board’s September communication already made clear that the November debate would be between unchanged rates and a hike."

"Since then, remarks by Jan Frait and Jakub Seidler have strengthened the anticipation for tightening, while elevated core inflation, robust credit growth and expansionary fiscal policy have made inaction difficult to justify."

"October CPI was marginally softer than anticipated on paper, but this reading is not very relevant in the overall scheme of things. Most of the deceleration came from volatile food, alcohol and tobacco prices; core inflation probably remained at around 3.1%y/y, while services inflation stayed stubborn at 4.5%y/y. Fuel-price caps and diesel-tax reductions may temporarily soften headline prints, but such administrative intervention cannot substitute for fundamental monetary policy."

"The relevant signal this afternoon will therefore be the total magnitude of tightening CNB is willing to signal, rather than today’s fully discounted hike alone. The koruna will remain under pressure because inflation is likely to accelerate faster than CNB will raise rates, leaving the real interest rate low or negative, while the weak euro will not help."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Find out more.)