Koruna Garners Strength In Reaction To Hawkish Posturing From CNB

The Czech Koruna has turned bid in reaction to hawkish overtones in the statement from the CNB's monetary policy meeting, with policymakers voting 6-1 to keep interest rates and the existing FX commitment unchanged.

• While the decision to keep monetary policy settings intact was fully baked in, some may have been taken off guard by the accompanying rhetoric, particularly an explicit pushback against market bets on Czech rate cuts.
• We flagged the potential for such rhetoric in our preview after Deputy Governor Zamrazilova recently expressed similar sentiment in an interview with Bloomberg. Governor Michl today reiterated that current rate cut bets are "premature."
• Michl added that Koruna exchange rate strength is a key tool to tighten monetary conditions and noted that the currency "could be even stronger than it is now," even as EUR/CZK was sitting just ~1.3% above its 15-year lows when the CNB statement hit.
• CNB comments inspired an upward adjustment to Czechia's FRA curve, indicating a hawkish shift in the expected interest-rate trajectory. CZGB yields have moved higher, led by pressure to the short-end of the curve.
• EUR/CZK printed a two-week low at CZK23.535 and last sits -0.065 at CZK23.564. A break under recent intraday troughs clears the way to CZK23.343, which limited losses on Mar 1.