Czech Koruna: CZK stays under pressure as CNB tightening remains limited - Commerzbank

The Czech National Bank (CNB) raised rates to 4.00%. Commerzbank’s Tatha Ghose notes that the 25 bp increase was widely expected. However, the narrow 4–3 vote and references to ‘fine-tuning’ suggest little prospect of further tightening. Staff projections put inflation above target in 2027, alongside weaker growth. With real rates remaining low or negative, Ghose expects continued pressure on the Czech Koruna (CZK).

25 bp CNB hike signals fine-tuning, not 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."

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