Czech Koruna: CNB pause before potential November hike – ING

ING’s Frantisek Taborsky notes that the Czech National Bank (CNB) kept its policy rate at 3.75% with a dovish tone versus market pricing, but ING economists now expect a hike in November due to higher inflation forecasts and elevated global energy prices. While EUR/CZK trades around 24.300–24.350, ING sees a stronger Dollar lifting the pair near term before potential CNB hawkishness supports the Koruna.

CNB stance and Koruna outlook

"The Czech National Bank yesterday left its policy rate unchanged at 3.75% in a unanimous decision. The CNB press conference struck a dovish tone relative to market pricing, as expected, but signalled a "no-change" stance compared to the August meeting. The CNB Board remains open to further rate hikes yet sees no need to rush at this moment."

"However, our economists changed their forecast from unchanged rates to a hike in November, given our upside revision in the Czech inflation forecast and elevated global energy prices."

"While the initial market reaction was dovish, rates ultimately ended the day unchanged from pre-decision levels. The CNB outlook remains a mixed bag; four rate hikes are still priced in, and the yield curve saw only slight steepening."

"Looking ahead, we anticipate the CNB adopting a more hawkish stance in the coming weeks and months. This should shift the curve from steepening to flattening and support the currency."

"EUR/CZK briefly touched 24.350 yesterday but closed lower. For now, the 24.300–24.350 range appears fair, though we expect a stronger US dollar to push the pair higher in the coming days."

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