EUR/CZK likely to decline only gradually over coming months, says Commerzbank

The EUR/CZK currency pair is expected to only decline gradually over the coming months, given that it is surprising the Czech crown has not appreciated by more; last week, senior CNB board members increased their support for monetary tightening as the economy is very strong at the moment, Commerzbank reported.

This was followed by the publication of detailed Q2 GDP data on Friday, which showed an even stronger 2.5 percent q/q increase in Q2 than the flash estimate of 2.3 percent had suggested -- this 2.5 percent is the fastest on record. The data breakdown highlighted a particularly sharp increase in fixed investment which was responsible for the ultra-strong performance.

Since the Czech Republic is not as sensitive to EU funds as many CEE peers, one is left wondering whether or not there might have been large one-off components, which we will find out about later. Whatever the reasons turn out to be, the CNB will be pressured to hike rates in such a robust growth environment, especially as Czech inflation is already above target.

"We expect a 25bps hike on September 27; and if there is no moderation in indicators over coming month, then another 25bps in early November as well. Nevertheless, such prospects are only sporadically pushing the crown higher -- but not in a sustained manner," the report said.

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