Czech's CB chief hints at possible extension of FX cap

EUR-CZK has been drifting lower in recent days again, falling below 27.10 this week; this is a reflection of the general EM rally; CZK has not outperformed PLN or HUF. EUR-CZK is already close to its official 27.00 target, so downside from here is limited - if it got any closer to 27.00, it would face intervention from CNB. 

"CNB is likely to come out with increasingly dovish language during board meetings and follow-up remarks; CNB senses that disinflation prospects have intensified over the past couple of months and makes the inflation target unlikely to be reached using current monetary policy parameters", says Commerzbank. 

Governor Miroslav Singer hinted during an interview yesterday that the CB will be debating delaying its exit from FX targeting to beyond the currently specified H2 2016; he emphasised that monetary policy would have to remain loose for a while longer, notes Commerzbank. His presumed successor, Jiri Rusnok, who will take over from the middle of next year, has also expressed doubts that the FX cap can be ended on schedule, which adds weight to this prospect.