Czech Koruna Remains Under Pressure as Limited CNB Tightening Weighs on CZK - Commerzbank

A widely expected 25 bp increase took the Czech National Bank’s (CNB) policy rate to 4.00%, but Commerzbank’s Tatha Ghose sees little likelihood of further tightening given the narrow 4–3 vote and the description of the move as ‘fine-tuning’. With staff projections pointing to above-target inflation in 2027 and weaker growth, Ghose expects continued pressure on the Czech Koruna (CZK) as real interest rates stay low or negative.

CNB signals fine-tuning rather than a full tightening cycle

"The Czech National Bank (CNB) raised its policy rate by 25bp to 4.00% yesterday, as unanimously anticipated, but the 4-3 vote was unexpectedly close, with three board members preferring unchanged rates. We reiterate our argument that the relevant signal was the total magnitude of tightening CNB was willing to indicate, rather than the November hike alone."

"The post-meeting statement remained hawkish in describing the inflation outlook, citing elevated core inflation, robust wage growth and rapid lending growth. But the earlier sentence about the board debating a rate hike at future meetings disappeared. Governor Ales Michl also stressed that the decision represented ‘fine-tuning’ rather than the beginning of a new tightening cycle. Such communication significantly reduces the likelihood of another hike in December."

"The updated staff forecast was nevertheless concerning. CPI inflation is forecast at 3.2% in 2027, peaking at 3.7%y/y in Q1 and returning to the tolerance band only in Q4. Meanwhile, the 2026 GDP growth forecast was cut from 2.2% to 1.7%. The 3-month PRIBOR projection of 4.1% for 2027 implies broadly stable rates rather than a meaningful tightening cycle."

"This combination reinforces our earlier concern: inflation is likely to accelerate faster than CNB will raise rates. The koruna will tend to remain under pressure because the real interest rate will stay low or negative as inflation accelerates, while the weak euro is not helping either."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Learn more.)