The Czech koruna shot up yesterday, as the central bank stayed on hold. The koruna hovered around the EUR/CZK 28.55 ahead the decision. It jumped up by 20 hellers to 28.35 after the bank announced the interest rates remained unchanged. The market even didn’t wait for usual later commentary of governor. In the end, the unit consolidated in the 28.40 zone. Governor Tuma repeated his worry over a strong koruna. However, the market was little scared as the bank proved not to act against the strong koruna at this moment. Many of such comments from the CNB in recent two months devaluated its importance.
The central bank likely relies on the ECB, which is expected to hike rates next week. They hope that other widening of negative interest rate differential may weaken the koruna. Therefore rate cut expectations may return after this strategy proves to be wrong. The CNB is unhappy with the koruna at 28.40 or stronger level, where the koruna is moving in the days to come. All in all, the bank might cut rates in March. Today the koruna may march further south as unarmed central bank encourages traders to attack koruna’s high.
(CSOB - Investment research)