The Czech koruna's performance against the euro remains constrained as the Czech National Bank (CNB) maintains a dovish stance, despite ongoing market expectations for potential rate hikes. ING’s Frantisek Taborsky highlights that, following the latest CNB meeting, market participants continue to price in approximately three rate hikes over the next 12 months, a sentiment similar to that seen with Poland’s central bank (NBP) [1].
A recent interview with the CNB governor for local media reiterated dovish arguments, including the view that the current CNB rate is significantly above both inflation and the European Central Bank (ECB) rate. The governor also discussed fiscal policy, noting a widening deficit this year, which could potentially support inflation. However, the overall tone remained cautious, with the baseline expectation from ING economists being no change in policy for now. They anticipate lower inflationary pressures in the coming months due to base effects, reinforcing the expectation that the CNB will remain on hold [1].
Despite these dovish signals, the koruna has traded largely unchanged in the EUR/CZK 24.300–24.400 range in recent weeks. Weaker global sentiment and the CNB’s cautious approach are expected to push the currency towards the upper end of this range [1].
CONCLUSION
The Czech koruna is likely to remain range-bound as the CNB maintains a dovish outlook, despite market pricing for future rate hikes. Market participants should watch for shifts in global sentiment and fiscal developments, but no immediate policy changes are expected from the CNB.