The Czech koruna tumbled yesterday as CNB Board member Jan Frait said the bank might cut interest rates due to a strong koruna. Therefore the unit sunk from EUR/CZK 28.45 where traded in the morning to as low as 28.635. The koruna broke through the upper limit of the recent trading band 28.22-28.56. Frait is the leader of dovish wing in the Board and his comment on interest rates and the koruna should not have surprised anybody. Frait was among those who voted for the rate cut on the last policy meeting for sure and will likely vote for it again. His words don’t mean that the distribution of opinions in the Board changed. We conclude, if the koruna approaches 28.00 level the Board might cut rates, otherwise it might stay on hold. Czech koruna falls out of range 28.22-28.56 on rate cut worry .
Today data on retail sales are due, but might not affect the market. Thus the koruna may recover. However, there is a risk of another comment from the central bank. Two
members usually speak to the markets in the week ahead a policy meeting.
(CSOB - Investment research)