CNB discusses negative interest rates

Latest Czech National Bank's (CNB) board minutes confirmed what Governor Miroslav Singer had hinted at following the rate decision last month, that the CNB board actively discussed further monetary easing and use of negative interest rates. 

EUR-CZK rose sharply ahead of the rate meeting in anticipation that the CNB might cut rates to negative. But, this did not occur. Dovish sentiment prevailed but still, most board members agreed to wait and watch inflation developments in coming months. EUR-CZK has drifted lower since. 

"The developments in China do pose fresh disinflation risk for the region, and CNB could cut rates to negative during H1 2016. Under this scenario, CNB would also maintain its EUR-CZK target of 27.00 for longer than we currently forecast, possibly until mid-2017", according to Commerzbank. 

This is not mainly expected for now, but the risk to this forecast would shift in this direction if inflation data were to surprise to the downside over the coming quarter. In this scenario there are upside risks to EUR-CZK.