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CNB Likely To Hike By 50bps On Mach 31

CZECHIA
  • The lower chamber of Czech parliament gave the final approval for a plan to send 650 soldiers to Slovakia as part of a multinational contingent designed to reinforce NATO’s eastern flank in Europe (BBG).
  • Forward rates have been rising in the past few days following CNB Deputy Governor Mora’s comments on the terminal rate.
  • Mora said in an interview on Wednesday that Czech rate may peak ’well above 5%’.
  • With the FRA 3Mx6M currently trading above the at 100bps above the Pribor 3M, market is pricing in a terminal rate at 5.5%.
  • Following the sharp CZK recovery, a 50bps hike is very likely for the next meeting on March 31, with risks being skewed to the upside slightly (i.e. 75bps).
    • Forward rates are currently pricing in between 50bps and 75bps hike, with 1Mx4M trading at 63bps above Pribor 3M.
  • Delivering aggressive hikes from the current level of rates will accelerate the economic downturn.
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