WOOD Flash – Czech Republic macro: CNB steps up hawkish demeanour
At its meeting yesterday (3 May), the Monetary Council kept the policy rate on hold, at 7.00%, as expected, but the tone of the press statements and the voting record had a meaningful hawkish turn that brings back the risk of a rate hike in the near future. Economic data have been showing improving momentum in recent months, and this is reflected in the CNB’s higher GDP projections. That said, given the growing downside risks for global growth in 2024E, the MPC may not be able to reach a majority for new tightening. Holding on to the current high level of interest rates for longer appears, to us, to be a more achievable middle ground, which should support an appreciating bias for the CZK. Looking ahead, we have pushed back the timing of the rate reduction cycle and do not expect rate cuts to begin before February 2024E, taking the policy rate down to 4.00% by end-2024E.
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