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CNB Rate Outlook In Focus As Czech Inflation Beats Expectations

CZECHIA
  • The koruna turned bid and participants added hawkish CNB bets, with the local FRA curve moving higher, as Czechia's May CPI data beat expectations. Headline inflation came in at +11.1% Y/Y, exceeding the +10.8% median estimate in a Bloomberg survey. Expectations of a more benign outturn may have been boosted by last week's interview with CNB Deputy Governor Eva Zamrazilova, who told Seznam Zpravy that she sees May inflation at +10%-11% Y/Y, which could pave the way for a single-digit reading in June. The central bank will comment on the data at 12:00BST/13:00CEST.
  • There have been some sceptical local voices about the effectiveness of the CNB's monetary policy. During a debate aired on CT Fiscal Council Chairman Mojmir Hampl said that Czechia is unlikely to reach the inflation target even within a year or year-and-a-half, while government advisor Helena Horska said that the CNB should raise interest rates. In addition, former CNB Deputy Governor Ludek Niedermayer told Hospodarske Noviny that while reducing inflation to +6% Y/Y should be relatively easy, bringing it to the +2% Y/Y target can be extremely difficult.
  • Seznam Spravy ran further comments from Zamrazilova this morning. The Deputy Governor said that Czechia's economic growth is weighed on by the characteristics of the local labour market ("people prefer free time and are not so interested in additional income"), high inflation and elevated interest rates. The official added that the CNB are not yet thinking about when they will lower interest rates and will be cautious not to cut them prematurely.
  • Separately, Zamrazilova said in a tweet yesterday that a strong exchange rate allows the central bank to target the companies that "escape" domestic from monetary policy and take loans in EUR. which are "half as cheap." She added that "even if the interest rates were at 20%, half of the companies would enjoy loans in EUR at 4.5%."
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