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Morning Summary: CNB To Maintain Primary Focus On Price Stability

CZECHIA
  • Covid cases continue to gradually decrease with the 7D SMA of daily new cases dropping below 1,300 (and down from 12,300 from its early March highs). As a result, Czech government continues to ease pandemic restrictions, reopening shops and services after 4 months of lockdown. Czech government may open hotels and guests houses and allow indoor cultural events with as many as 500 people in the audience starting May 24. At 1pm (London time), the Cabinet will meet to discuss arrangements for travel abroad.
  • Based on the CNB minutes of the May 6 meeting published this morning, policymakers agreed that the monetary policy tightening decision had moved much closer since its last meeting. CNB Governor Jiri Rusnok emphasized that the central bank will remain focus on its primary mandate, which is price stability . As a reminder, first hike is still priced in for as early as August as CNB prepares for a tightening cycle (while other CEE countries aim to keep interest rates steady to maintain financial conditions as loose as possible to stimulate the economy), which is one of the major reasons why CZK has remained strong against major crosses in recent weeks.
  • Czech Opposition parties, which launched a bid to remove PM Andrej Babis from office, plan a no-confidence vote in June; together the parties command 68 votes (of the 200-seat lower house of parliament), which is short of the 101 votes needed to win.
  • Yesterday, we saw that the CBA improved its GDP growth projections for 2021 from 2.6% to 3.3%, but decreased next year's predictions from 4.6% to 4.3%.
  • Next economic data to watch are current account today (9am London time) and PPI industrial on May 17.
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