CNB reduces rates, but did not offer anything new – ING

The Czech National Bank (CNB) cut interest rates by 25 bps to 4.25%, as expected. The CNB’s press conference offered little new information, ignoring the Federal Reserve’s decision and refraining from commenting on market prices, notes ING FX strategist Frantisek Taborsky.

EUR/CZK will fall in the short term

“Of course, the Fed’s rate cut and the favorable global outlook will be visible in the November forecast in a downward revision of the rate trajectory. On the other hand, the next catalyst is September inflation, which only looks mechanical at 2.6%, based on the previous deviation from the CNB forecast.”

“That’s what some of our numbers look like, despite falling fuel and energy prices, which would push the CNB to an uncomfortable level given another base effect jump in December, increasing the chance of inflation returning to 3% . This is why our economists expect a break in December.”

“From this perspective, we face a hawkish risk in the next two months, while the market is tilted in our view. Paying CZK installments looks challenging in the current environment, but a print of inflation could change that. Given this unwavering stance, we still expect EUR/CZK to decline in the short term, as suggested by the current rate differential.”