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CNB's Prochazka Brushes Away Dovish Market Bets, Frait Was Close To Voting For Rate Hike

CZECHIA
  • Comments from CNB policymakers stole the limelight over the weekend. Jan Prochazka told Lidove Noviny that the Bank Board are planning to keep interest rates higher for longer than implied by the central bank's baseline forecast, effectively reaffirming recent pushbacks from his colleagues against premature market bets. Prochazka revealed that some members look at declining retail sales and credit growth, but others are paying more attention to "clearly overheated" labour market. Note that Prochazka was one of the three Bank Board members seeking a 25bp rate hike at the most recent meeting, with the other four members voting for no change.
  • Jan Frait's comments for Euro magazine showed that the Bank Board may have been very close to resuming monetary tightening. CNB Deputy Governor told the newspaper that he saw a strong case for a rate hike and "in the end (...) felt it was 51 to 49 in favour of holding rates" The official warned that "inflation might remain at elevated levels," which warrants keeping monetary settings tight going forward. Should Frait vote for a rate hike earlier this month, he would have tipped the balance in the Bank Board.
  • EUR/CZK has paused its recent rally and sits below neutral levels, albeit it has been reluctant to test the prior trading day's low so far. The pair trades ~2.2% above its multi-year low printed last month at CZK23.207.
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