CNB may hike rate by 0.20 bps in early August, EUR/CZK to gradually decline in 2018 - Commerzbank

The Czech National Bank’s latest board minutes from its June meeting show an increasingly confident central bank, convinced that all domestic macroeconomic parameters are in line with the gradual normalization of monetary policy.

The bank’s board is still cautious because of externally induced disinflation and the tightening effect of an appreciating koruna, noted Commerzbank in a research report. However, when the domestic inflation pressure steadily exceeds imported disinflation pressure, rate hikes would follow. There is a low possibility that the central bank would raise its base rate by 0.20 basis points to 0.25 percent in early August, stated Commerzbank.

If the central bank hikes its rate, the CNB is unlikely to continue with its hiking cycle at a regular interval as the subsequent course of inflation around the CEE is likely to be soft. A rate hike would be rather seen as a one-off adjustment of the policy rate away from ‘technical zero’. According to a Commerzbank research report, the EUR/CZK pair is expected to gradually decline further in the coming year.