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UBS on CZK and CNB, Expects EURCZK To Retrace Higher

CZECHIA
  • The first policy rate decision under the guidance of new CNB Governor Ales Michl will take place in early August.
  • Michl has been critical of rate hikes and currency interventions in the past, but the CNB has intervened strongly in the market in recent weeks, and the inflation situation and outlook (June: 17.2% y/y) would argue for further rate hikes.
  • UBS thinks keeping the koruna propped up artificially for the benefit of fighting inflation carries risks for the country’s competitiveness, and therefore is an unsustainable policy.
  • The shifting CNB board composition has weakened a key backstop for the koruna as well, in UBS view.

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