The Czech National Bank, as expected, left its rate at 2.0% for the eight month in row. The decision to leave the official rate unchanged was unanimous. Nevertheless despite a neutral bias of the Bank Board central bank Governor Tuma said at the following press conference that probability that the next move in rates would be upwards had risen. It is quite obvious that the key reasons, which allow CNB to keep official rates at the current (very low) level while a global monetary tightening cycle accelerates, is the strong Czech koruna. In fact, Tuma confirmed that the Czech currency is still stronger than the bank has assumed in its inflation projection.
From this perspective, the CNB policy stance will be now FX driven, which makes a forecast for a timing of the rate hike very difficult. Nevertheless, we still believe that should the EUR/CZK pair remain below the 28.60 resistance, the central bank would have room to stay on hold at least next two months, since the headline year-on-year inflation should fall back below the medium tem target (3.0%). Hence in our opinion the Czech monetary tightening cycle should not be reactivated sooner than either in September or during the last quarter of the year.