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MNI CNB Preview - March 2023: Leaning Against Dovish Market Bets

Executive Summary:

  • The CNB is widely expected to keep its interest rates, FX regime and formal hawkish bias unchanged this week as incoming data and central bank communications point to continuity in the general strategy.
  • In her recent interview with Bloomberg, Deputy Governor Eva Zamrazilova pushed back against "overdone" market pricing of 2023 rate cuts and flagged risks to the inflation outlook.
  • Bank Board newcomers Jan Kubicek and Jan Prochazka are not expected to tip the balance in the rate-setting panel, due to the now former President Milos Zeman's dovish bias.

Full preview including summary of sell-side views here:

MNI CNB Preview - March 23.pdf

Consensus unanimously looks for the Czech National Bank to keep the main policy rate unchanged this week, while sticking with the existing backstop for Koruna depreciation and with a formal hawkish bias. Inflation remains at elevated levels, while the Bank Board’s confidence in the effectiveness of a mix of stable interest rates and a strong exchange rate seems unshaken. Meanwhile, hawkish comments from some Bank Board members point to a readiness to push back against market pricing of any near-term rate cuts as the CNB is trying to get its familiar core message across.

Just days ago, Deputy Governor Zamrazilova stole the limelight by explicitly pushing back against what in her view was too dovish CNB rate pricing by financial market participants. The market has been testing the Bank Board’s claims that interest rates might have to stay higher for longer and the official decided to pick up the gauntlet. Zamrazilova outlined the conditions for starting a rate-cut debate, which include inflation easing to single digits and positive signals from Q2 wage and household consumption data, which will only become available in September. Her comments inspired some hawkish repricing in Czechia’s FRA curve but it remains to be seen if the Bank Board is satisfied by this fairly limited adjustment to market expectations.

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