/CZK: Still Heavy After Central Bank Divergence Drives Pair To Record Lows

Although both the CNB and NBP left interest rates unchanged earlier this month, their rhetoric shed light on the differences in their views on monetary policy and FX matters, a risk we had recently flagged. This allowed PLN/CZK to pierce the psychological CZK5.0000 figure last week on its way to new all-time lows of PLN4.9511.

• PLN/CZK remains heavy at the start to the new week and last trades at PLN4.9588, down 127 pips on the day. The rate has moved below its lower 2.0% Bollinger band, while its RSI is in oversold territory, which provokes questions about the sustainability of the recent sell-off.
• The day after Poland's rate decision, NBP Governor Glapinski noted that the Polish Zloty is a "strong currency" and there is no need for its further appreciation. His comments took some by surprise, given the Zloty's status as the worst performer in CE3 this year.
• Meanwhile, the CNB stuck with its existing FX regime, which serves as a backstop against Koruna weakness and has helped push EUR/CZK to its worst levels in 15 years. The CNB also reaffirmed its view that a strong exchange rate is a key buffer against imported inflation.
• Furthermore, the CNB suggested that it may need to keep interest rates higher for longer, while the minutes of the most recent Bank Board meeting showed that policymakers expect rates to stay unchanged at least until Q3, which is longer than implied by staff forecasts. Several members expressed readiness to hike if needed.
• The NBP's decision to keep rates stable came dressed in more dovish rhetoric. Although Governor Glapinski said it is too early to discuss rate cuts, much of his press conference focused on the costs of any renewed tightening, while his comments on the inflation outlook were tilted to the dovish side.