ING’s Frantisek Taborsky highlights that Czech inflation has recently surprised on the downside; however, strong wage growth and stable core inflation are keeping the Czech National Bank (CNB) on track for a rate hike at its upcoming June meeting [1]. The market is already largely pricing in this rate hike, but ING believes the decision itself could further strengthen the Czech koruna (CZK), as it marks the beginning of a tightening cycle [1].
Taborsky notes that the CNB is unlikely to view this hike as the start of a series of rate increases, but market participants may still anticipate additional tightening, which could support further gains for the koruna [1]. ING forecasts that the EUR/CZK exchange rate could test 24.00 next week, with potential for more koruna appreciation as the Czech Republic positions itself as an early hiker among emerging markets [1].
The CNB’s blackout period before the meeting begins on Thursday, and more comments from the bank board are expected before then [1]. Overall, the prospect of early monetary tightening by the CNB is painting a bullish outlook for the Czech koruna [1].
CONCLUSION
The Czech National Bank is expected to raise rates at its June meeting, a move that is largely priced in but could still boost the koruna. ING anticipates further koruna gains as markets price in additional tightening, positioning the Czech Republic as a leader among emerging market central banks.