Koruna Extends Gains With CNB In Focus

EUR/CZK remains under light pressure following yesterday's hawkish hold delivered by the CNB in a 4-3 vote, where the dissenters called for a 25bp rate hike. The decision was accompanied by firmly hawkish comments from Governor Ales Michl. When this is being typed, EUR/CZK trades -0.025 at CZK23.490 and bears keep an eye on Apr 14 low of CZK23.207. Bullish focus falls on Mar 28 high of CZK23.820 and Mar 17 high of CZK24.137.

• Speaking after the Bank Board meeting, CNB Deputy Governor Eva Zamrazilova told public TV channel CT24 that future decision whether to raise interest rates further will be contingent on the outcome of the government's measures to curb budget deficit (tax hikes could be pro-inflationary as opposed to trimming state subsidies for businesses). She refused to rule out cutting rates in Q3 but this would require a mix of "very unlikely anti-inflationary factors."
• The central bank released the opening part of its Monetary Policy Report ahead of schedule, with staff noting that in the baseline scenario "interest rates will be able to start coming down in the second half of this year according to the forecast," albeit "the Bank Board discussed two additional forecasting scenarios," which "assume that interest rates will be kept at the current level for longer."
• Czechia's 6x9 FRAs hold post-CNB gains but there have been corrective pullbacks further out the curve. The 3x6 contract has crept even higher as participants assess the probability of a rate hike in June.