Koruna Turns Bid As CNB Dep Gov's Pushback Against '23 Rate-Cut Bets Prompts Hawkish Repricing

EUR/CZK posted a leg lower as CNB Deputy Governor Eva Zamrazilova said in an interview that market bets on Czech rate cuts in 2023 may be overdone. The rate has now sold off through its 50-DMA (CZK23.759) to last trade -0.088 at CZK23.706, with bears eyeing losses towards Mar 1 low of CZK23.343.

• Bloomberg cited Zamrazilova as noting that any rate-cut debate will need to be preceded by inflation easing to single-digit levels and a review of Q2 wage growth and household consumption data, which will only be published in September. She highlighted manufacturing and construction salary growth a "warning signal," even as expectations of a "rather dynamic" disinflation in 2H2023 still stand.
• Zamrazilova's comments reaffirms the message communicated by several local central bankers. Their warnings that it might be necessary to keep interest rates higher for longer to prevent inflation from becoming persistent have been tested by market participants who started to price in 2023 cuts.
• ING said in a note yesterday that "the inflation story in the [CEE] region remains strong and does not give room for such a rapid rate cut in the near term," adding that the CNB at its meeting next week will "remind the market that fighting inflation is still the bank's main objective."
• CZGBs took a hit amid a hawkish adjustment to CNB expectations in response to Zamrazilova's comments. Yields last sit 8.5-14.1bp higher across the curve. Czech FRA curve has shifted higher, with 9x12 contracts returning above the 6% level.