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Rising Inflationary Pressures, Weaker Growth

CZECHIA
  • Yesterday, CNB Vice Governor Nidetzký said that he expects the debate at Nov 4 meeting to be about 50 or 75bps rate hike. He also mentioned that he expects inflation to peak around 6% around year-end/early January, and downward revisions in growth forecasts.
  • As a reminder, the CNB surprised the market at its last meeting on September 30, raising its policy rate by 75bps to 1.50% (vs. 50bps exp.), its highest level since March 2020.
  • Even though odds for another aggressive hike in November (i.e. 75bps) are still elevated given that inflationary pressures are expected to remain high until at least the end of the year, the rise in Covid uncertainty may slow down the pace of the CNB tightening cycle as business and economic sentiment indicators have been falling in recent months.
  • Czech Republic reintroduced new restrictions amid rising cases, with respirator masks becoming mandatory at all workplaces and indoor events.
  • With growth forecasts expected to be reviewed significantly to the downside, can the CNB board continue to deliver an aggressive tightening cycle, running the risk of accelerating a downside scenario in the coming months?
  • First estimate of Q3 GDP will come out on Friday (Oct 29), expected to decelerate to 3.2% YoY (from 8.1% the previous quarter).
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