The Czech National Bank's interest rate outlook likely to create appreciation pressure on CZK

The CNB's interest rate forecast points to four 25bp hikes in the first half of the 2017. However, CNB would likely exit the intervention regime earlier and hike less. 

"Given the market outlook on ECB rates, the ECB deposit rate should be -0.3% at that moment. The CNB's interest rate differential would attract more capital inflow into CZK, creating appreciation pressure", says Societe Generale in a research note. 

Czech's inflation rate is rising and hitting its inflationary target at monetary policy horizon, there is strong consumer demand and solid GDP growth. The central bank's projected interest rate path seems excessive, taking these factors into consideration. 

"There will also be a board reshuffle in Q3 16, and the president will likely appoint two new board members who oppose the intervention policy. Despite the change in CNB language, we do not see any reason to change our view that the floor will be scrapped in Q3 16", added Societe Generale.