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Rate Hikes Have Been A Reaction To Local Inflation Risks

CZECHIA
  • According to the CNB minutes (Nov 4 meeting), the Czech rate hike have been a reaction to local inflation risks. In addition, 'weak' CZK could also continue to support inflation expectations in the medium term.
  • Link to minutes: https://www.cnb.cz/en/monetary-policy/bank-board-decisions/CNB-Board-decisions-1636040880000/?tab=record
  • CNB is still expected to continue its tightening cycle in the coming meetings with 'sharp' hikes despite the deep inversion in the yield curve.
  • We saw recently that CNB Governor Rusnok rejected PM Babis recent criticism of the central bank's aggressive tightening cycle. Babis wrote in an opinion piece: (BBG quote) "The Czech National bank is not coming up with some experiment designed to choke the economy. It only wants to cool its overheating parts".
  • This week, economic data showed that Czech CPI inflation continued to surprise positively in October, up 5.8% YoY (vs. 5.5% exp.), up from 4.9% the previous month.
  • With Covid cases surging, Czech government continues to stricter measures to limit the downside risk of a fourth wave of infections.

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