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CNB Surprises Market With 75bps Hike, CZK Slightly Up

CZECHIA
  • CNB surprised the market today by hiking its policy rate by 75bps to 5.75% (vs. 50bps expected).
  • This decision was unexpected (base scenarios were expecting 25bps / 50bps hike) following Rusnok comments that future rate hikes will be considered ‘cosmetic fine tuning’.
  • CZK is stronger following the decision, with EURCZK currently trading slightly above yesterday low at 24.5630. Next support to watch on the downside stands at 24.5220, followed by 24.50.
  • Even though inflationary pressures are expected to remain elevated in the near term, the rapid deceleration in the economic activity could push policymakers to prioritize growth over inflation again.
  • CNB could halt its tightening cycle at 5.75% if risk aversion keeps increasing in the near term, leaving the real economy and domestic risky assets vulnerable.
  • FRA 6Mx9M is currently trading at 6.20%, implying that market is pricing in a terminal rate between 6% and 6.25%.
  • CNB press briefing will start at 3.45CET.
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