Local Analysts React To CNB Monetary Policy Decision

Snap reactions from Czech analysts to the latest CNB monetary policy decision focus on the central bank's decision to formally terminate the FX intervention regime, with more clarity expected during Governor Michl's press conference.

• Komercni banka point to the ambiguous messaging, with the CNB "formally ending the intervention regime," while also committing to "within the managed floating exchange rate regime, (...) prevent excessive fluctuations in the koruna exchange rate" if needed. Regarding the the second part, they conclude that "this is what the CNB has done until now, as the current Bank Board has never made any commitment to any specific level of the exchange rate." Hence, "it is very difficult to draw conclusions about how the central bank will approach the exchange rate of the koruna" and "Governor Michl's press conference (...) could provide more information." They expect interest rates to remain unchanged through the year-end, with a risk that a cut could be delivered already this year. Their baseline assumes the first cut in February 2024, to the tune of 50bp.
• Patria write that while he on-hold rate decision was expected, "a significant part of the market was surprised by the formal termination of the intervention regime announced in May 2022." They predict that "even if the koruna can stabilise after short-term losses, it may continue to be more vulnerable to external shocks and more tied to the dynamics driving CEE currencies."
• Czech Banking Association Chief Economist Jakub Seidler tweets that "the CNB intervention regime ends today, the CNB is trying to support the koruna by announcing the sale of part of the proceeds from foreign exchange reserves."