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CNB Surprised The Market With An Aggressive 125bps hike

CZECHIA
  • The CNB surprised the market yesterday with a 125bps hike (vs. 75bps consensus), lifting the policy rate to 2.75%, its highest level since November 2008.
  • In its statement following yesterday's meeting, the CNB said that it is ready for more hikes (than previously forecasted) as inflationary pressures are expected to remain elevated in the coming months.
  • Czech inflation is expected to approach 7% this winter, far above the CNB 3% upper tolerance band.• Five policymakers (versus 2) voted for a 125bps hike.
  • CNB forecasts 'sharp' hikes in late 2021 and early 2022.
  • Governor Rusnok said during the press conference that it is likely that future hikes will be of smaller magnitude.
  • The central bank also raised its 2022 CPI forecast to 5.6% (vs. 2.8% previously).
  • This morning, economic data showed that retail sales fell to 3.6% in September (vs. 4.3% exp.), down from revised 5.6% the previous month.
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