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MNI CNB Preview - May 2022: CNB To Hike Policy Rate To 5.5%

Executive Summary:

  • The CNB is likely to raise its benchmark rate by 50bps to 5.5% at its next meeting on May 5 to continue its ‘fight’ against inflation, which is expected to remain elevated longer than what policymakers previously estimated.
  • While some analysts expect this week’s hike to be the last one, other sell-side analysts are pricing in a terminal rate at 6% (STIR market pricing in a terminal rate between 6% and 6.25%).
  • The other area of focus at this week’s meeting will be whether the CNB turns more open to using the exchange rate more actively as a policy tool.

Link to full publication:

CNB Preview May 5.pdf

The Czech National Bank is likely to raise its benchmark rate by 50bps to 5.5% at its next meeting on May 5 to continue its ‘fight’ against inflation, which is expected to remain elevated longer than what policymakers previously estimated. The other area of focus at this week’s meeting will be whether the CNB turns more open to using the exchange rate more actively as a policy tool.

CPI inflation continued to surprise positively in March and accelerated to 12.7% YoY (vs. 12.4% exp.), its highest level since May 1998, up from 11.1% the previous month, mainly driven by the surge in food and energy prices. Figure 1 (left frame) shows that inflation has been diverging significantly from the CNB 3-percent upper tolerance band, which has been pressuring policymakers to remain ‘hawkish’. Inflation could reach 14% in the near term according to CNB Governor Rusnok, mainly due to the Ukraine war shock. Sell-side analysts have increased their year-end target to 8.9% and their 2023 (end-year) target to 3.5%

Source: Bloomberg/MNI

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