The crown is consolidating below the psychological threshold. CNB helped her

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The koruna against the single European currency is gradually gaining strength and consolidating below the level of 25 crowns per euro. It got there briefly last week, when the Czech National Bank (ČNB) was in session. It was the recent meeting of central bankers that helped the koruna strengthen to its strongest levels since February this year.

The CNB surprised the markets somewhat. Although the central bank lowered interest rates by half a percentage point to 5.25 percent, as expected, the accompanying comments from Governor Aleš Michl and the newly published forecast hinted at a tighter monetary policy for the rest of this year.

Analysts of the central bank revised the forecast of the three-month PRIBOR rate upwards, from which, according to economists, it can be concluded that the base interest rate could be four percent at the end of the year. However, the previous forecast indicated a base rate even below three percent.

At the press conference after the meeting, Governor Michl also stated that part of the bank board sees an equilibrium interest rate “somewhere” above three percent, which would indicate the effort of some members of the bank board to maintain positive real interest rates in the long term. It was Michl’s words that gave wind to the crown’s sails.

“The CNB will continue to lower the interest rate more slowly and more cautiously than originally expected,” Purple Trading analyst Jaroslav Tupý explains the stronger position of the koruna.

According to ČSOB Group analysts, the koruna may continue to benefit in the short term from the reverberations of the CNB meeting in May. Investors are now waiting for Monday’s domestic inflation data for April. “According to our estimate, it accelerated from two percent to 2.6 percent year-on-year thanks to more expensive fuel and food,” the analysts said.

But the crown will also be interested in what is happening on the main markets. “From this point of view, we see US inflation for April as a crucial number, for which we estimate room for a slight downward surprise. This could bring some relief to the markets and slightly increase bets on a drop in interest rates in the US this year, which the koruna would certainly acknowledge,” say experts from ČSOB. April inflation will be released in the United States next Wednesday.

The Czech Banking Association also commented on the exchange rate of the koruna on Thursday, when it presented a new macroeconomic forecast.

“The average value for this year should thus remain above the threshold of 25 CZK per euro. At the end of this year, the prognostic panel continues to estimate the strengthening of the koruna and the exchange rate around the level of CZK 24.8 per euro. Even in the case of the outlook for next year, none of the forecasts foresee a weakening of the koruna above the threshold of CZK 25 per euro,” the outlook states.