CNB likely to keep key interest rates constant over the year in lieu of inflation meeting target, says Commerzbank

The Czech National Bank (CNB) is expected to keep the country’s benchmark interest rates unchanged over the course of this year, on expectations that the inflation rate will fall to the central bank’s target of 2 percent in the course of the next 12 months, according to the latest research report from Commerzbank.

The preliminary confirmation of this view by the April inflation figures weighed on the koruna, which yesterday was trading as weak against the euro as it had not been since the end of March. The preliminary GDP growth figures for the first quarter of 2019, which are due for release tomorrow, could provide further impetus for the koruna.

While the publication of the minutes of the last CNB meeting on May 2 did not reveal anything new and the koruna reacted only briefly intraday on Friday, consumer prices in April surprised to the downside yesterday with 2.8 percent on the previous year (consensus: 3.0 percent).

The available data on the development of the economy in the first three months of 2019 paint a mixed picture. While industry is suffering, private consumption is likely to have continued to provide support, the report added.

After the surprisingly good fourth quarter of 2018, it is likely that the momentum of the previous quarter has slowed somewhat.

"Positive domestic factors in particular are likely to continue to receive less attention than external factors (exacerbation of trade tensions, Brexit), which is why pressure on the koruna is likely to continue in the short term," Commerzbank further noted in its comments.