Next year’s CNB picture is unclear – ING

After yesterday’s 25bp rate cut in Hungary, expect the same move in the Czech Republic today from the Czech National Bank, notes Frantisek Taborsky, FX strategist at ING.

CNB may push EUR/CZK below 25.00 today

“Today’s meeting is without a new forecast and the board will only discuss an internal update. However, communication in recent weeks indicates a 25bp rate cut to 4.25%. So the focus will be on future guidance for the next meeting and especially next year. Inflation in August was above the CNB forecast by 0.4 percentage points, which could make the governor stay hawkish again.”

“The market expects three 25bp rate cuts by the end of this year and a terminal rate next year at 2.75%. This is below our economists’ forecasts. However, this is still a possible scenario for this year, while next year is against the central bank’s end-of-cycle communication above the neutral rate of 3% for now.”

“The market is thus strongly on the dovish side, but in the current conditions we see it difficult to go against the market at the moment in the rates space, but remain positive on CZK, which we believe will benefit most from the CNB request. EUR/CZK fell yesterday and is approaching 25,050. We think the CNB can push EUR/CZK below 25.00 today.”