Commerzbank’s Tatha Ghose expects the Czech National Bank (CNB) to keep rates unchanged, with the board comfortable at current levels and united against both tightening and easing. While he sees inflation risks as overstated, the Iran war and higher energy prices justify caution. He argues that hawkish CNB rhetoric should limit downside for the Czech Koruna (CZK) unless Oil prices fall meaningfully.

Hawkish hold supports Koruna stability

"The Czech National Bank (CNB) is unanimously expected to leave rates unchanged later today, extending the pause signalled in recent communication. Board members have consistently argued that monetary policy must remain tight until there is full confidence in inflation returning sustainably to target."

"Crucially, the board appears to be comfortable with the current level of rates, and there is no constituency for either tightening or easing at this stage."

"The persistence highlighted in official commentary reflects certain inherent stickiness of service, rent and similar segments which, however, are unlikely to truly diverge from headline inflation over a protracted period."

"But that said, this disagreement is secondary for now. The Iran war is clearly shifting the risk balance: higher energy prices and renewed FX volatility introduce upside risk to inflation that CNB should not ignore. This reinforces the case for unchanged rates for the coming quarter at least."

"Only a meaningful decline in the oil price can re-start the easing debate. Until then, the more hawkish CNB language should cap downside risk for the koruna."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)