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CNB Dilemma: Inflation vs. Uncertainty

  • Health Minister Adam Vojtech and public-health chief Pavla Svrcinova are scheduled to present the Czech government's plans to tackle an exponential surge in Covid-19 cases (BBG).
  • Even though odds for another aggressive hike in November (i.e. 75bps) are still elevated given that inflationary pressures are expected to remain high until at least the end of the year, the rise in Covid uncertainty may slow down the pace of the CNB tightening cycle as business and economic sentiment indicators have been falling in recent months.
  • Czech Republic reintroduced new restrictions amid rising cases, with respirator masks becoming mandatory at all workplaces and indoor events.
  • With growth forecasts expected to be reviewed significantly to the downside, can the CNB board continue to deliver an aggressive tightening cycle, running the risk of accelerating a downside scenario in the coming months?

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