CNB 2W repo:
Actual: 0.75 %
Consensus: 0.75 %
Previous: 0.75 %
The CNB has left interest rates unchanged, which was broadly expected. Six Board members voted for stable rates, one member for a rate hike. The bank considers the risks for the inflation projection as balanced. Some members see prevailing upward risks for inflation. On the other hand, Governor Singer said that fiscal cuts might allow lower interest rates than the CNB previously expected.
Several hawkish comments came from the bank during the last month and raised a risk of a shift in the CNB policy. But finally, the meeting result was not surprising. We therefore stick to our view of stable rates in the next months. We expect a tightening cycle to start in 2H 2011, which is in line with the current CNB projection. The rates should not go up earlier because of risks for the real economy - German and Eurozone slowdown, Czech fiscal cuts.
The koruna did not show an imminent reaction to the CNB decision. However, if a rate hike gets more support in the CNB Board, the koruna strengthening might accelerate and bring the rate farther from the CNB projection.