MNI CNB Preview - February 2024: CNB Keeps Foot On Gas Pedal

Executive Summary:

• Analysts are divided on whether the CNB could accelerate rate cuts.
• A couple of policymakers flagged readiness to step up monetary easing.
• Macroeconomic data remain dovish but familiar concerns remain.

Full preview including summary of sell-side views here:

MNI CNB Preview - February 2024.pdf

A couple of Bank Board members stirred the pot in the lead-up to this week’s monetary policy meeting, suggesting that a rate cut to the tune of 50bp (or more) was something they could consider. While seeing limited probability of a bolder move, we think that a half-percentage-point move is on the table. Data coming out of Czechia’s real economy have been consistently dovish, leaving the country as the only EU economy yet to recuperate from the pandemic-era contraction in output. On the other hand, the risks from relatively dovish market pricing, koruna depreciation, and sticky core inflation reduce the scope for aggressive monetary easing, making it a close call between a 25bp and a 50bp move.

The Bank Board is still debating the optimal strategy, as the views of its members diverge. While last week’s comments from Frait and Holub suggested that an outsize move will be given serious consideration, it is unclear if the usually cautious Bank Board will decide to follow through with a bolder move – even as continued disinflation and weak growth would justify such a decision. When this is being typed, a narrow majority of analysts (14 out of 24 polled by Bloomberg) expect the CNB to trim rates by 25bp, even as the market prices a 50bp move.