Bond yields fell by approximately 5bps due to quite surprising unanimous vote of the CNB’s bank board for the last rate cut. The CNB confirmed that the risks of the January forecast were accumulating on the anti-inflationary side. The economy grew faster than the central bank expected but consumption lagged behind. At least one board member mentioned a possibility of further cut due to the disinflationary risks and that motivated some market players to think about another change of rates. We think that the possibility of further rate cut is not high for now. At the end of April the CNB’s Board will discuss a new inflation prognosis and there is no doubt that in case of inflation it should be more optimistic than the last one. However, we believe a rate cut would rather depend on the exchange rate development. Therefore further fast koruna gains can increase the willingness of the CNB to cut the rates by another 25bps again because of tighter monetary conditions and stronger disinflationary pressures.
(CSOB - Investment research)