7 days with the koruna – The koruna fell below EUR/CZK 25 after the NB session

A week has passed was loaded with many events. Data on GDP growth for 1Q24 in R, Germany and the eurozone, and even data on inflation in Germany and the entire eurozone did not move the Czech crown. It remained around the 25.10 EUR/CZK mark, which did not change even after Fed session, which left rates unchanged. At the following press conference, Chairman Powell appeared in a dovish tone, when the team ruled out the possibility of further rate hikes. Only a part of my committee thinks that my policy is restrictive enough. The first dream of rates was met this year, which was also supported by the results from the American labor market indicating its possible cooling. The most important event of the past week from the point of view of the crown was the sheep meeting of the banking board of NB. That sweat in ad saw the year’s rates by 50bb, which was actually within the analytical community. In the base year, the rate fell to 5.25%, when all 7 members of the bank board voted for this dream, despite the fact that Jan Frait and Tom Holub preferred a drastic dream rate reduction at the previous meetings. However, the Czech koruna hovered around 25.10 EUR/CZK after the public decision, but that changed during the following press conference of Governor Alee Michl in connection with the statement on real annual rates. The banking council still rates risk as pro-inflation and has been introduced new macroeconomic forecast, according to which the Czech economy could grow by 1.4% this year (originally 0.6%, n estimate 1.5%) and by 2.7% in the fifth year. The average inflation should reach 2.3% this year (originally 2.6%, n estimate 2.3%), in the course of the year, it is likely to move towards the upper limit of the tolerance line thanks to rising fuel prices and the stopping of the trend falling food prices. Fourth, however, the NB analytical department revised the 3M PRIBOR forecast, from which it can be concluded that the base rate could start at 4% at the end of the year, while the previous forecast indicated a base rate even below 3%. At the same time, the governor stated in the debates about the equal years of rates that the banking council saw somewhere close to 3%, which would indicate the effort of some banks of the council to maintain a long-term positive real years of rates. The koruna immediately reacted to this and broke the level of 25 EUR/CZK. In this week the supply of data from the world and Czech economies has no significant potential to influence the Czech crown. The financial markets will thus quickly incorporate the day from the previous week. Undoubtedly, geopolitical developments in the world are an essential factor. If there are no unexpected events, we expect the Czech crown to stabilize around the current level of EUR/CZK 25.
Author: Martin Kron, analyst Editor: Helena Horsk, chief economist
The economic research team of Raiffeisenbank as