EUR/CZK Sees Moderate Dip on Michl Comments, Policy Statement

Highlights from the CNB policy statement:

• Consistent with baseline scenario is a rapid decline in market interest rates in course of this year.
• Board assessed risks and uncertainties of baseline scenario in winter forecast as being modestly inflationary.
• Inflationary risks include slower decline in elevated inflation expectations, higher-than-expected inertia in services prices, crown FX rate.
• Board confirmed determination to continue its tight monetary policy in order to stabilise inflation near 2% target in long term.
• Labour market tightness is easing slowly; risk of wage-price spiral does not seem to be materialising.

Initial comments from Governor Michl's press conference (via Bloomberg):

• Czech bank will be cautious about further rate cuts.
• Czech cuts may be halted at restrictive levels if needed.
• Czech data point to rate path above central bank forecast.
• Czech koruna FX rate is among inflationary risks.

While the 5-2 vote split is broadly in-line with sell-side expectations, some had analysts had flagged the possibility of a tighter vote split, which may be accounting for the slight dip in EURCZK alongside Michl's initial comments which seem to be hawkish at the margins. For EURCZK, the 50-DMA at 25.115 marks the support level to watch. That average provided firm support on Mar 18 as well as back in January.