CNB Review: A hike is in the air
The desk identifies a likely interest rate hike by the Czech National Bank (CNB) in November, signaling a cautious but determined stance on monetary policy tightening. Per the full note , despite keeping rates unchanged at 3.75%, the unanimous decision reflects 'clear hints' towards a rate increase due to persistent inflationary pressures, particularly in core prices and housing. The CNB's readiness to act is bolstered by projected oil price increases, indicating that inflation forecasts support this action. Hence, it may be prudent for traders to prepare for potential volatility in the Czech koruna ahead of the next monetary policy meeting.
What the desk is arguing
The desk believes that the CNB's current policy stance indicates a strong possibility of a rate hike in the upcoming November meeting. The unanimous decision to maintain the rate at 3.75% along with signs of pro-inflationary risks points toward an inevitable tightening if conditions remain elevated. Per the full note , the governor communicated that the decision would pivot on whether current inflation trends stabilize or necessitate a hike.
Supporting this thesis, the commentary highlights sustained pressures from housing prices and wage growth, alongside an expectation of higher oil prices influencing inflation forecasts. The cited risk factors present a compelling case for why a November hike has emerged as a likely scenario.
The alternative read would consider the risks of de-escalation in geopolitical tensions, particularly in Ukraine or the Middle East, which could provide a moderating effect on inflation and potentially delay any rate hike decisions.
Where it sits in our coverage
Our consensus target for EUR/CZK is currently set at 1.075, with a range of 1.04 to 1.12. The following firms provide pertinent targets: - jpmorgan: 1.10 (Mar26) - bofa: 1.04 (Mar26)
This view aligns with jpmorgan, which anticipates a stronger koruna, reflecting a tightening cycle that could carry through to the end of 2026. It is important to note that the desk's call is situated at the upper end of the spread, indicating a bullish bias on the koruna in response to CNB's monetary policy dynamics.
How other firms see it
Aligned firms, such as jpmorgan, share a bullish outlook on the CZK amid expectations for policy tightening from the CNB. Conversely, bofa holds a more cautious stance, suggesting potential downside risks that might lead to a depreciation in the koruna.
Monitor the EUR/CZK and CZK/USD pairs closely, as their movements may significantly reflect the CNB's policy shifts amid a volatile inflation landscape.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01CNB maintains a policy rate of 3.75% but hints at a potential hike in November.
- 02Inflationary risks driven by housing, wages, and oil prices are influencing this outlook.
- 03The desk suggests the market should prepare for koruna volatility ahead of the next meeting.
- 04Cross-firm consensus generally supports a stronger koruna as rates are expected to rise.
Market implications
Watch for fluctuations in EUR/CZK as markets assess the likelihood of a rate hike; a movement above 1.075 could indicate growing expectations for tighter monetary policy. Pay special attention to sentiment shifts as we approach the November meeting.
Risks to this view
A de-escalation in geopolitical tensions or signs that inflation is stabilizing, particularly if January price adjustments suggest a milder outcome than projected, could invalidate the expectation of a rate hike. This would likely lead to a depreciation of the koruna as market sentiment shifts.
Articles CNB Review: A hike is in the air Published 17:23 Czech Republic Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download Czech board members left the policy rate unchanged at 3.75% in a unanimous vote. The press conference may have made only a slightly hawkish impression, yet we detect a firm conviction for tighter monetary policy if warranted. Our inflation forecast supports a rate hike in November, particularly under our scenario of elevated oil prices David Havrlant and Frantisek Taborsky The CNB kept rates on hold at the September meeting but hinted that rate hikes could be coming Slightly hawkish tone with firm conviction The Czech National Bank left the policy rate unchanged at 3.75% in a unanimous decision.
We read the CNB presser as slightly hawkish, with clear hints that tighter monetary policy remains on the table if needed. The Board deems the overall risks as pro-inflationary, especially due to persistently elevated house price growth and stubborn core inflation. Robust credit activity, potentially expansive fiscal policy, and potent wage growth also point to risks to price stability in the medium term.
The governor made clear that the next meeting in November will be a choice between stable rates or a rate increase, without signalling a preference for either outcome in a rather balanced assessment. Those expecting rates to remain on hold may point to phrases such as long-term price stability, while those in favour of a rate hike may focus on the preference for a strong koruna. In any case, given our rather punchy inflation forecast, we shift to a single rate hike in November as our baseline scenario.
That said, we are ready to unwind the call should signals on regulated price adjustments in January suggest a much milder outcome than we expect and/or the conflict in the Middle East or Ukraine de-escalate substantially, implying a tangible and lasting decline in oil and natural gas prices. Things have changed, and the Board may be pushed towards a tighter monetary policy stance, even though we fully understand its preference to remain in wait-and-see mode for some time. So, unless the expected increase in inflation at the turn of the year is decisively viewed as a temporary upsurge, driven solely by energy prices with few second-round effects, we think the case for a rate hike will prevail.
For now, it seems like a close call, with a 60% probability for a rate increase and 40% for the base rate to remain unchanged. Oil prices have been too high for too long We are increasing our inflation forecast in light of the latest developments, notably the escalation of the conflict in the Middle East that has driven Brent crude prices above $100/bbl once again. Considering the elevated oil and natural gas prices, a weaker koruna outlook, and the long-awaited monthly gain in agricultural producer prices, all inflation subcomponents as defined by the CNB are becoming stronger.
Pricing in agriculture surprised slightly to the upside in August, marking the first upside surprise after a series of weaker-than-expected readings and signalling a long-anticipated turnaround driven by higher fuel, fertiliser and transport costs. Oil prices defy the usual downward outlook Source: ING, Macrobond "> Source: ING, Macrobond Well, energy prices rule them all, so we present both a baseline and alternative outlook for Brent crude prices, adjusting natural gas prices in a similar fashion. The thing is that we have repeatedly hoped for a sustainable softening in oil prices since March and never actually got it.
So we want to gain a better understanding of the scenario in which no substantial and prolonged decline occurs. Our baseline inflation forecast is shaped by Brent crude prices remaining above $100/bbl in September and October but gradually receding thereafter to just above $80/bbl by mid-next year. Meanwhile, we examine what is likely to happen to headline inflation and its subcomponents should – for whatever reason – the Brent crude price remain well above $90/bbl for an extended period, say until late-2028.
Many factors point towards punchy 2027 inflation Source: CZSO, ING, Macrobond "> Source: CZSO, ING, Macrobond Considering next year’s headline inflation, many items point in the same direction, be it the renewed regulated and food price growth, persistently strong fuel prices, stubborn core inflation, or the effect of a low 2026 comparison base. Should energy prices evolve in line with our baseline scenario, headline inflation would average 3.3% next year and core inflation at 2.9%. We take the position that the window for domestic energy distributors to purchase the underlying commodity at a reasonable price has not really opened since March, so we expect regulated prices to rise around 4% next year.
That said, we will receive more information about price plans in the regulated segment over the coming months, with January’s monthly price adjustment being notoriously hard to gauge. Core inflation set to remain stubborn Source: CNB, ING, Macrobond "> Source: CNB, ING, Macrobond Considerable uncertainty surrounds January's adjustments to regulated prices, including electricity, natural gas, heating and water charges, as well as the trade-off between mandatory and discretionary spending, which could weigh on core inflation. Nevertheless, should global energy prices remain elevated for an extended period, such as in our alternative scenario, we see headline inflation averaging just below 4% next year with the core rate at 3.1%.
That is quite a different story, as households’ compulsory expenditure would absorb a much larger share of their budgets, while the perception of inflation returning could prompt consumers to hit the brakes on spending either for precautionary reasons, or just because it will be harder to make ends meet for medium- and low-income earners. Everyone tilts towards tighter monetary policy When considering the nominal interest rate path (including one hike) and the inflation profile, real interest rates would remain close to the zero-bound up until mid-next year even in our baseline scenario for headline inflation. Should oil prices remain higher for longer, real rates would likely drift into negative territory for a longer period, as our alternative scenario suggests.
And we know that the governor and other board members are not big fans of negative real interest rates. We’ve always agreed on this. That said, the European Central Bank's real interest rate has remained negative since March, the Federal Reserve's real interest rate has flirted with zero since April, and we see what has happened.
Indeed, the era of deeply negative real borrowing costs is clearly behind us. We take the stance that the CNB’s inclination for positive real rates will ultimately prevail in November, especially if the koruna's weakness no longer helps to dampen imported inflation. At this stage, this is set to be a one-and-done tightening move, also because the real interest rate is set to climb through the second half of next year.
Real interest rates set to flirt with the zero-bound Source: CNB, ING, Macrobond "> Source: CNB, ING, Macrobond Our market view The CNB press conference struck a dovish tone relative to market pricing, as expected, but signalled a "no-change" stance compared to the August meeting. The CNB Board remains open to further rate hikes, yet sees no need to rush at this moment. While the initial market reaction was dovish, rates ultimately ended the day unchanged from pre-decision levels.
The CNB outlook remains a mixed bag; four rate hikes are still priced in, and the yield curve saw only slight steepening. Looking ahead, we anticipate the CNB adopting a more hawkish stance in the coming weeks and months. This should shift the curve from steepening to flattening and support the currency.
EUR/CZK briefly touched 24.350 today but closed lower. For now, the 24.300–24.350 range appears fair, though we expect a stronger US dollar to push the pair higher in the coming days. However, September inflation data, due in early October, could mark a turning point; headline figures exceeding the CNB’s forecast for the first time in a while might trigger more hawkish commentary from the central bank.
Oil price Monetary policy Interest rates Inflation Forecast Czechia CNB Content Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download Authors David Havrlant Chief Economist, Czech Republic David joined ING in 2024 as Chief Economist for the Czech Republic.
He gained professional experience at the Czech National Bank and international institutions such as the ECB, the EC,… Frantisek Taborsky EMEA FX & FI Strategist Frantisek is an FX & FI Strategist covering EMEA markets, having joined the bank in 2022. He provides short- and medium-term recommendations for ING's corporate and institutional client… In this article Slightly hawkish tone with firm conviction Oil prices have been too high for too long Everyone tilts towards tighter monetary policy Our market view
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