The Czech National Bank will publish the minutes of its November meeting today. The governor’s press conference last week was rather neutral and did not provide much detail. However, the CNB meeting with analysts showed more details of the new forecasts and topics of the board. Today’s minutes could show this discussion in our view.
On the hawkish side, the Bank Board is concerned about higher wage growth, while on the dovish side, the risk is weaker foreign economic development, especially in Germany. At the same time, the new CNB forecast did not cover the news on energy prices. ETS2 was postponed from 2027 to 2028, which was announced a few days before the meeting. At the same time, we see proposals from the new government to subsidise part of energy prices and announcements by several suppliers to cut market prices from January.
Overall, the headline inflation profile has shifted down by around 0.4-0.5pp in 2026 and 0.6pp in 2027. The question is how much this has been reflected in the board’s discussion, but as the press conference indicated, the CNB is becoming more neutral here, compared to the very strong hawkish tone in previous months.
However, the described scenario may not be visible in trading for some time and October inflation actually surprisingly rose slightly to 2.5% mainly due to food prices. We have seen some paying in rates where the front-end reached highs from late September and the market is currently pricing in around one rate hike of 25bp in the 1.5y horizon. Although these changes in headline inflation call for more dovish pricing, for now it provides support to FX.
Yesterday’s rebound in EUR/USD, surprisingly strong current account data and a wider rate differential helped EUR/CZK down below 24,200, the lowest since September 2023. We still believe in gradual CZK appreciation looking ahead. In the short term, however, it seems that EUR/CZK has fully exploited the potential of higher rates and for now the fair value level seems to be somewhere in the range of 24.200-250.
Chris Turner
