The Czech money market rates went
further up on Wednesday due to the weak
koruna. On the long end of the yield curve,
Czech bonds were initially influenced by the
sell off on German market after the strong
IFO figures. Later in the session, Czech
bonds did not have enough time to reverse
the losses after weaker than expected US
Existing Home Sale.
While there is some room for some bullish
price action in early trading today following
the less hawkish-than-expected FOMC
statement, the focus should be on the CNB
Bank Board decision. We stick to our
previous opinion that CNB will leave its
repo rate unchanged, despite the fact that
one dove will miss today’s meeting. In our
view, a favorable inflation outlook and last
minute dovish comments from a Bank Board
member suggest that the CNB won’t hike
interest rates for the second time in row.
Hence, given the fact that part of the market
still bets on a rate hike we should see a
positive reaction at the front end of the
yield curve after the release of CNB’s
decision. It is worth adding that the CNB will
discuss a new inflation projection and
governor Tuma should indicate its
implication for future interest rate decisions.
ČSOB Investment Research