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JPM on CNB: Still Room For Further Hikes

CZECHIA
  • Although Aleš Michl’s preference for stable rates from August is well known (he likely voted against today’s move as well, we believe), he will represent just one vote in the board, and ultimately the data will dominate.
  • In the last three months, core CPI has run at an average annualized pace of over 17%, and JPM expects it to continue progressing at a fast pace for at least another couple of months.
  • In that scenario, the CNB’s August projection likely will prescribe an even higher rate path (instead of 8-8.5%, the peak can easily move to 9.5-10%).
  • The market has already reacted negatively to Mr. Michl’s declaration of intentions; if the board were to neglect a hypothetical hawkish input by the research department at this stage, credibility could be questioned, in JPM view, and analysts think FX depreciation pressure would increase further. Given that the new Governor is also known for considering FX sales undesirable, he will have to opt for the lesser of two evils from his point of view.
  • JPM believes if credibility is at stake, ultimately the issue must be addressed with rates, which is why JPM still sees another final rate hike of 50bps in August (to 7.5%).
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