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Czech Koruna Outlook Ahead Of Key Policy Meeting

ByDanske Markets
Published 11/01/2013, 07:39 AM
Updated 05/14/2017, 06:45 AM
FX Intervention Closer Than Ever

The nervousness ahead of next week's monetary policy setting meeting in the Czech Republic is rising. Even though the key policy rate is at a technical zero of 0.05% and hence cannot be lowered any further (as negative interest rates are not an option for further monetary easing), the question is whether the Czech central bank's board will this time agree that further monetary policy easing is warranted.

Given that the economy remains weak, at the same time as the CNB is undershooting strongly its inflation target, further monetary easing is urgent in our view. The further fall in inflation may convince some of the hawks on the CNB board that the deflation risk should be taken seriously and monetary conditions should be loosened further to avoid deflation. We acknowledge that the outcome of next week's board meeting is highly uncertain and will be a close call but we cannot rule out that FX intervention could be push through this time.

Therefore, we recommend being positioned for a weaker CZK going into next week.

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