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CNB Likely To Hike By 75bps This Week

  • The Czech Republic imposes tougher rules for non-vaccinated people, including shorter validity of Covid-19 tests required for various activities such as restaurant visits or cultural events (BBG).
  • Last week, economic data showed that the Czech economic activity decelerated in Q3 with GDP (estimate) coming in lower than expected at 2.8% YoY (vs. 3.2% exp.), down from 8.1% the previous quarter.
  • We saw last week that the Czech 2Y10Y yield curve inverted, therefore increasing the odds of an economic downturn.
  • As inflationary pressures are expected to remain elevated until at least the end of the year, participants continue to price in aggressive hikes in the coming meetings.
  • It seems that participants are split between a 50bps and 75bps hike at this week's meeting (Nov 4).
  • As CNB board seems to be very sensitive to the acceleration of inflation in recent months, an aggressive hike (75bps) is more likely at this meeting before slowing down the pace of the tightening cycle as business and economic sentiment indicators continue to deteriorate.

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