CNB likely to wait till 2018 to hike key interest rate, CZK to strengthen over medium term

The Czech central bank, during its November meeting, had hiked the two-week repo rate by 25 basis points to 0.50 percent. This decision was widely expected by the market and the CZK had depreciated a bit on the day it was made after some dovish comments during the press meeting. In November, Czech’s headline inflation dropped slightly to 2.6 percent year-on-year, while the jobless rate dropped to a new record low of 3.5 percent. The market continues to expect that the central bank will go ahead with another rate hike, but with a bit disappointing wage growth figures and inflation dropping it appears unlikely that it will do so in December.

“We expect the CNB to wait until 2018 and to hike the two-week repo rate by 25bp in February”, noted Danske Bank in a research report.

Meanwhile, in November, the EUR/CZK pair went below 25.40, but on the back of a more patient central bank and some subdued numbers out of the Czech Republic, EUR/CZK has moved back towards 25.70.

“We project that the cross will hover around current levels in the short term and look for more gradual CZK strengthening over the medium term”, stated Danske Bank.

FxWirePro launches Absolute Return Managed Program. For more details, visit http://www.fxwirepro.com/invest