Yesterday the Czech koruna was waiting for the central bank decision on rates. The currency started at 28.38 EUR/CZK and slightly firmed followed the positive regional sentiment. After the rate hike announcement the koruna erased its previous gains and closed near the starting level. The 25bps rate hike was generally expected and therefore no surprise occurred. The main interest rate has thus reached 50bps above its historical minimum, while it is lagging 50bps behind the main interest rate of the ECB. Present lower rate differential is more favourable for the Czech currency but it is most likely that the differential will widen again due to the expected ECB hike.
Today the Czech koruna will closely watch the region and we don't expect bigger fluctuation before the weekend. We think that the exchange rate will move within the narrow range of 28.30-28.45 EUR/CZK. The possible progress on the political scene will have no effect on the currency.
(CSOB - Investment research)