Czech National Bank keeps guidance unchanged
4.11.2016Company: Amcham
Thursday’s Czech National Bank (CNB) meeting brought only minor news. The guidance about the FX commitment remained unchanged. The CNB will not discontinue the use of the exchange rate as a monetary policy instrument before 2Q17, and it still considers it likely that the floor will be removed in mid-2017. The only news was a slight reduction in the inflationary outlook. The bank board held a standard debate about negative rates. After Thursday’s meeting, we have no reason to change our call. We still believe the CNB will scrap the floor in 2Q17 and that the exit will be accompanied by negative rates.
The CNB’s position did not change after Thursday’s monetary policy meeting. It maintained the floor at EUR/CZK 27, and repeated that it will defend this at least until end-1Q17 (the so-called “hard commitment”). During the press conference, Governor Rusnok reconfirmed that the bank board sees the probable end of the FX commitment around mid-2017. His view was corroborated by the CNB inflationary forecast, which, despite minor downward revision, still sees the 2% inflationary target being reached in 3Q17. The bank board discussed negative rates once again, but this discussion did not extend beyond the usual bounds. Rusnok stated that negative rates had been mentioned as a possible supportive tool to smooth the process of scrapping the FX floor.
Thursday’s meeting provides no reason to change our call on the CNB. We still expect it to scrap the FX floor in 2Q17, shortly after the end of the hard commitment. This view is corroborated by our bullish inflationary forecast, which sees inflation hitting the CNB target as soon as February 2017. We believe the CNB will introduce selective negative rates aimed at the incoming euro liquidity to deter the inflow of speculative capital and thus smooth the exit process. To read more about our CNB call see: http://bit.ly/2ee2A0p.
Tags: Economics | Finance |
