Pressure returns on EUR-CZK floor

Czech GDP data for Q2 turned out to be very strong. The economy's GDP was 1 percent stronger than consensus expectation as it posted at 4.4% y/y growth. 

Although the strength of the economy through H1 reflects the sharp pick up in the Eurozone economy in Q1 which has triggered a wave of fresh capacity building in auto and other cyclical sectors; H2 is ex-pected to feature more modest growth rates.

According to Commerzbank, "We will have to adjust our 2.9% GDP growth forecast upward over coming weeks. The main market implication of the data, however, is that there will now likely be increased pressure on CNB to exit the EUR-CZK floor early." 

CNB has already made a case for not strictly sticking to inflation targeting during periods of large commodity driven deviations; and growth does not appear to need much more support. So, now that CNB is taking intervention losses from having to intervene and defend the floor, CNB signals need to be watched closely for potential change of language regarding 'exit timing', says Commerzbank.