MNI Analysis: Czech Nat Bank Holds Rates, Tweaks Forecasts

By Darren Walker

     LONDON (MNI) - The Czech Koruna was higher against the euro Thursday,

boosted by the hawkish tone of the Czech National Bank (CNB) latest policy

statement, with hopes of further modest gains in coming weeks if key technical

resistance is breached. 

     The central bank left its main interest rate unchanged on Thursday, the

Monetary Policy Committee voted 6-1 to hold the rate at 0.75%.

     --ULTRA LOOSE POLICY UNSUCCESSFUL

     A central bank dependant on the exchange rate to tighten monetary

conditions, has been unsuccessful. The CNB has lifted its main two-week repo

rate in three steps since Aug 17 after more than 4 years of ultra loose policy

of rates near zero, together with intervention against the CZK currency.

     --HAWKISH CENTRAL BANK

     Central bank Governor Jiri Rusnok, in the press conference that followed

the policy statement, said he forecasts one rate hike in late 2018, adding the

bank cannot rule out an earlier rate increase should the situation markedly

deviate from the existing assumptions. The CNB sees the average 2018 Koruna rate

at 25/EUR vs previous 24.9. New forecasts assume broad stability of market rates

initially, followed by further growth in rates from late 2018/early 2019.

     --LOOK TO ECB

     Interest rate differentials (IRD) with the ECB continue to play a major

part especially since the ECB do not plan to exit its ultra-loose monetary

policy until later this year. The CNB will have limited room to raise rates

should the differentials remain wide, further pressuring the CZK.

     --CZK BUOYED

     The Kurona extended gains against the EUR on react with a sharp move from

25.588 to 25.468. The 100-dma provides key support at 25.430.

     CZK buoyed by the hawkish tone of the central bank will be eager to end its

run of four consecutive quarters of losses, Q2 is currently showing gains of

0.69%.

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

--MNI London Bureau; tel: +44 203-586-2232; email: darren.walker@marketnews.com