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JPM on CNB and CZK

CZECHIA
  • CNB hiking cycle has most likely peaked. The Governor and the board’s majority preference to stay on hold is obvious.
  • Two months ago this preference would look out of touch, but the macro picture has rotated sufficiently that JPM believes there is indeed a macro case to stay on hold.
  • The only potential challenge comes from financial markets: in a context of energy supply uncertainty, risk aversion towards EM could trigger severe FX weakness in CEE.
  • This is the main reason JPM still had some marginal additional hikes in the forecast.
  • Yet, neither is the CNB as averse to selling large chunks of FX to defend the Crown as JPM thought, nor is the market as keen to challenge the central bank.
  • In conclusion, the central bank’s preference to keep rates on hold appears consistent with the macro background and is likely to get limited challenge from financial markets.
  • JPM therefore now sees 7% as the peak in this hiking cycle, with rates on hold until late into 2023.
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