As expected, the CNB delivered a 25bp hike on 26 September. However, the market already had high expectations (one additional hike this year and two more next year). As such, today’s press conference in which Governor Rusnok was non-committal disappointed slightly.
Today’s hike delivered as expected
Today’s Czech National Bank (CNB) decision came as no surprise, as it was fully priced in by the market, given the recent comments by some CNB Board members. Still, market expectations were even higher, expecting in total two hikes this year and two more in 2019. As such, it was clear that today’s hike itself would not support CZK and the press conference would be the key event of the today.
The current high expectations of the market was slightly disappointed
The press conference itself had a dovish tilt, however. Firstly, one board member voted for a rate-stability (most likely O. Dedek in our view). Secondly, Governor Rusnok mentioned that a further hike is likely, but it will depend on the new forecast and it may even come only at the beginning of 2019 (rather than this year which the market is pricing in).
We still see one more hike this year as likely
Still, taking into account that: (a) the latest CNB forecast see the 2-week repo at 1.68% in 4Q18 on average, which is fully consistent with both September and November hikes, and (b) EUR/CZK at 25.25 in 4Q18, which is not a very likely path given current developments, the November hike remains very likely. Indeed, the EUR/CZK and interest rates combination for 4Q18 signals a solid need for monetary tightening demanded by the CNB model, and recent economic data should not change that in the new forthcoming forecast significantly.
What was mentioned further during the press conference:
Author: Jakub Seidler, Chief Economist, ING Bank Czech Republic
Image source: ING Bank Czech Republic
5th December 2018
9th November 2018
5th December 2018