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Heading North


Modi, AMLO Top Major Economy Leader Poll, Macron Last


Under Pressure


Trend Condition Remains Bearish

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  • Market prepares for CNB meeting next week (Nov 4), with policymakers likely to debate whether the central bank should hike by 50bps or 75bps.
  • The CNB surprised the market at its last meeting (Sep 30) by raising the policy rate by 75bps (vs. 50bps exp.) to 1.5% to curb the rising inflationary pressures.
  • As inflationary pressures are expected to remain elevated until at least the end of this year, participants continue to price in aggressive hikes in the coming meetings.
  • FRA 2Mx5M is currently trading 107bps above the Pribor 3M, implying that the futures rate market is expecting the policy rate to be at 2.5% at year-end, which would then be the highest level since November 2008 (see chart).
  • The market is also expecting the CNB to continue its tightening cycle through 2022 with the 3Mx6M FRA trading 125bps above the Pribor 3M.
  • However, the government recently decided to reintroduce some restrictions amid rising Covid cases, which could lead to a significant downward revision in growth expectations.
  • Therefore, can the CNB board continue to deliver an aggressive tightening cycle, running the risk of accelerating a downside scenario in the coming months?

Source: Bloomberg/MNI