Next year’s CNB picture is unclear – ING

After yesterday’s 25bp rate cut in Hungary, expect the same move in the Czech Republic today from the Czech National Bank, ING’s FX strategist Frantisek Taborsky notes.

CNB can push EUR/CZK below 25.00 today

“Today’s meeting is without a new forecast and the board will only discuss an internal update. However, communication in recent weeks points to a 25bp rate cut to 4.25%. So, the focus will be on forward guidance for the next meeting and especially next year. Inflation in August was above the CNB’s forecast by 0.4pp, which may see the governor stay on the hawkish side again.”

“The market expects three 25bp rate cuts by the end of this year and a terminal rate next year at 2.75%. This is below our economists’ forecasts. However, this is still a possible scenario for this year, while next year goes against the central bank’s communication of the end of the cycle above the neutral rate of 3% for now.”

“The market is thus strongly on the dovish side, but in the current conditions we see it difficult to go against the market at the moment in the rates space but remain positive on the CZK, which we think will benefit the most from CNB’s hawkishness. EUR/CZK jumped lower yesterday and is approaching 25.050. We believe the CNB can push EUR/CZK below 25.00 today.”