Czech Koruna: Softer CNB guidance may weigh against euro – ING

ING strategist Frantisek Taborsky says July Czech inflation at 1.7% year-on-year should have limited impact on the Czech National Bank (CNB) meeting. He expects rates to stay at 3.75%, with guidance leaning more dovish than markets. Taborsky looks for mixed forecast revisions, sees scope for only one more hike, and anticipates EUR/CZK trading around 24.20–24.25 as tightening expectations keep Czech Koruna (CZK) relatively weak.

CNB to hold rates and lean dovish

"July inflation brought little surprise, rising from 1.5% to 1.7% YoY. Lower food prices partly offset higher fuel prices, while services inflation picked up again to 4.7% YoY from 4.5% in June."

"We estimate core inflation was broadly unchanged at around 2.8-2.9%. Overall, the latest inflation print should have limited implications for today’s CNB meeting."

"We expect the CNB to keep rates unchanged at 3.75% at its first meeting after the June hike, which made it the only central bank in the CEE region to tighten."

"Overall, the picture should be mixed, but relative to current market pricing, the meeting should lean dovish. Despite the recent rates rally across the region, the Czech curve still prices two hikes, the most in EMEA."

"In our view, market pricing of further tightening should keep the CZK on the weaker side, with EUR/CZK likely to trade around the 24.20–24.25 range."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)