CZK: Hawkish cut but with more on the table – ING

Yesterday's Czech National Bank meeting brought several surprises. Ahead of the meeting, data showed that inflation slowed less than expected, dropping to 2.8% year-on-year from 3.0% in December, mainly due to food prices, ING’s FX analysts Frantisek Taborsky notes.

EUR/CZK to remain higher in the 25.100-200 range

“We won't know the core inflation numbers until next week but the breakdown from the flash report suggests a weak number. However, the CNB did cut rates by 25bp to 3.75%. The central bank also unveiled a new forecast that is more or less in line with our expectations. The GDP outlook was revised down closer to our forecast, EUR/CZK and inflation were revised down, while the rates path is slightly higher this year but lower next year.”

“The press conference was accompanied by the usual hawkish tone, but we found the tone slightly softer compared to previous meetings. The CNB is visibly open to further rate cuts, but we also know that the Board believes it is close to the end of the cutting cycle.”

“The market remained essentially flat in the rates space however the koruna did rally some, much like the rest of the region. Although we dropped our bearish bias yesterday, EUR/CZK should remain higher in the 25.100-200 range, in our view. Today we will see the CNB meeting with analysts and details of the new forecast, which could tell us more. However, given weaker inflation, we can expect rate cuts to be on the table for the next meeting, which should keep the CZK at current levels.”