Czech National Bank (CNB) Maintains Interest Rates, Delays Cutting Cycle Amid Mixed Signals for CZK

The Czech National Bank (CNB) decided yesterday to leave interest rates unchanged. At the same time, it presented a new forecast showing a weaker economy, lower inflation, a weaker koruna and also faster rate cuts next year. With the market expecting a rate cut, the central bank's decision led to an upward repricing of the short end of the curve, however the belly and end of the curve ended lower at the end of the day. The CZK is getting mixed signals, while the 2y interest rate differential ended only slightly higher in favour of the CZK at the end of the day. We are likely to see further pressures for CZK appreciation in the 24.400-24.500 EUR/CZK range today but we expect the pressure for a weaker CZK to return soon with more incoming data confirming a weak economy and triggering new bets on CNB rate cuts.