Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.
Executive Summary:
- The Bank Board voted 4-3 to keep the two-week repo rate unchanged at 7.00% and maintain the existing FX regime.
- The shift in the vote split coupled with unambiguously hawkish rhetoric at the press conference took many off guard.
- The tweaks to staff forecasts were fairly limited, although the central bank now expects the economy to grow this year.
The CNB delivered a hawkish surprise despite stopping short of an actual rate hike. While the Bank Board decided to keep interest rates unchanged, the outcome of the meeting was determined by a margin of just one vote. Governor Ales Michl used his subsequent press conference to lean against “premature” rate-cut bets and reaffirm the central bank’s increasingly hawkish bias in light of a tight labour market and excessively loose fiscal policy. The updated set of macroeconomic forecasts revealed that the CNB turned more optimistic about Czechia’s growth outlook and now expects the economy to grow moderately this year.
Fig. 1: Comparison of the CNB’s Spring and Winter Forecasts
Following release of the statement, the CZK turned bid and Czechia’s FRA curve shifted higher (contracts have now pared some of those gains). That immediate reaction showed that the market underappreciated the CNB’s determination in continuing to push back against current bets on an early start to the rate-cut cycle. The coming weeks will see a reassessment of CNB rate expectations ahead of the June 21 meeting. By that time, we will discover the names of the three hawkish dissenters in the rate-setting panel and should already know at least the broad contours of the government’s austerity package.
Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.