Czech National Bank preview: Another hike, more on the horizon
The desk anticipates the Czech National Bank (CNB) will raise interest rates by 25 basis points to 4.00% on November 5, driven by deteriorating inflation outlooks. Per the full note from ing-think, rising energy, food prices, and wages support an above-consensus inflation forecast that suggests further tightening is likely. Consensus forecasts among other firms indicate a similar view, reflecting a desire for rate hikes as inflation pressures persist across Central and Eastern Europe (CEE). With no significant economic calendar events preceding the rate decision, attention will remain on market reactions and positioning shifts leading into the meeting.
What the desk is arguing
The desk expects the Czech National Bank to hike rates to 4.00% next week, as inflationary pressures continue to mount. Per the full note from ing-think, the CNB's inflation outlook has deteriorated, leading to expectations of hawkish revisions in their upcoming forecast. As a result, the path forward appears increasingly tilted towards additional rate hikes following this upcoming decision.
With headline inflation at 2.5% in September, the CNB reports that both headline and core inflation have exceeded prior forecasts, indicating that the current trajectory is unsustainable without further tightening. Given the statements from Deputy Governor Frait and board member Seidler prior to the blackout period, we see strong support for a rate increase on the horizon.
Where it sits in our coverage
Our consensus target for the EUR/USD stands at 1.1500, with a range from various firms showing targets from 1.1162 to 1.2000 by December 2026. Key firms, including rabobank (1.1800) and mizuho (1.1600), align closely with this outlook, while bofa targets a lower end of 1.1500.
This view of a rate hike aligns with the broader consensus among firms anticipating a hawkish shift from the CNB, although our targets sit slightly lower compared to the higher projections coming from the commercial banking sector.
How other firms see it
Firms such as rabobank and nomura are aligned with the desk's expectations, indicating a general sentiment toward further rate hikes amid rising inflation. Conversely, firms like bofa appear more conservative in their approach, perhaps reflecting different assessments of the inflation landscape and its impacts on monetary policy.
In addition to the EUR/USD trajectory, keep an eye on the implications of the ECB rate path and its potential influence on CEE currencies amid increasing European inflation.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01CNB to raise rates to 4.00% on November 5 amidst worsening inflation outlook.
- 02Headlines and core inflation are both exceeding CNB forecasts, necessitating further hikes.
- 03Current consensus forecasts reflect a generally hawkish sentiment among firms.
Market implications
Traders should closely monitor the sentiment around the impending rate decision, especially the impact on the koruna relative to CEE peers. The market may react to the announcement with volatility, particularly if there are unexpected hawkish signals in the accompanying statement.
Risks to this view
Should the CNB choose to maintain rates at 3.75%, or if inflation unexpectedly falls, this would challenge the current bullish view on the koruna and its strengthened performance relative to peers.
EUR/USD — All Desk Targets
| Firm | Stance | YE 2026 |
|---|---|---|
Morgan Stanley | Bullish | 1.2150 |
StoneX | Bearish | 1.1000 |
Standard Chartered | Bullish | 1.1800 |
Articles Czech National Bank preview: Another hike, more on the horizon Published 15:20 Czech Republic Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download We expect the CNB to hike rates by 25bp to 4.00% on 5 November, with hawkish forecast revisions leaving further tightening on the table. Higher energy and food prices and wage costs underpin our above-consensus inflation outlook. The koruna should outperform CEE peers, while rates' pricing should limit any hawkish surprises Frantisek Taborsky The Czech National Bank in Prague CNB set to hike rates again We expect the Czech National Bank (CNB) to hike rates by 25bp to 4.00% next Thursday, the second such move since the onset of the US-Iran conflict.
The inflation outlook has deteriorated in recent months, even though headline inflation remains comfortably within the tolerance band (2.5% in September). However, both headline and core inflation have exceeded the CNB’s forecasts, and the outlook points to an upward trajectory. The CNB will have a new forecast at its disposal, which we believe will support the Bank Board’s decision to hike rates again and signal further increases to come.
The CNB has scaled back its forward guidance. Prior to the start of the blackout period, we observed only two interviews with board members. Deputy Governor Jan Frait stated that “arguments for a rate hike make sense,” though he noted that no decision has been made yet and that there are also reasons to keep rates unchanged.
Board member Jakub Seidler indicated that he leans toward a rate hike at the November meeting. While Frait is occasionally an outlier within the board, Seidler has consistently voted in line with the board’s consensus, giving us confidence that a rate hike will be delivered next week. 4.00% CNB key rate 25bp rate hike expected Hawkish forecast revisions point to further rate hikes The CNB’s new forecast is expected to feature a series of hawkish upgrades. Headline and core inflation have run slightly above the forecast in recent months, which marginally raises the starting point.
External assumptions are also likely to undergo a significant hawkish revision. In the new forecast, eurozone CPI and PPI are expected to be significantly higher, while the EURIBOR projection—based on forward rates—has shifted upward by roughly 80bp on average across the entire horizon of the CNB’s forecast compared to the August outlook. Based on current forward prices, the CNB’s forecast for oil prices will have to be raised by 21% for next year and by 11% for 2028 relative to the August forecast.
The outlook for gas prices is even more pronounced, with an upward revision of 80% for next year and 60% for 2028. Furthermore, the CNB must incorporate the government’s draft budget for next year, which anticipates a 6.8% average increase in public sector wages and an 11.2% hike in the minimum wage. Collectively, these factors should lead to a notable revision of the inflation outlook for next year; in the August version, the CNB had projected an average of 2.8% for the first quarter of 2027, with a subsequent slowdown.
Sources & References
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