Currency Forecast - CZK: Appreciatory Trajectory To Continue - FEB 2018

BMI View: The Czech Republic's stronger economic growth trajectory and more stable politics compared to the eurozone will provide tailwinds to the Czech koruna. A widening real interest rate differential over the eurozone should further favour CZK, as the Czech National Bank will tighten monetary policy further in 2018-19, whereas the European Central Bank (ECB) will keep its policy rate at 0.00% until 2020 .

Short Term (three-to-six months)

The Czech koruna (CZK) received tailwinds over the past few weeks from the Czech National Bank's (CNB) decision to raise interest rates by 0.25 basis points (bps) to 0.50%. The rate hike on November 2 was the CNB's third monetary tightening decision of 2017, after it scrapped its currency floor against the euro in April and raised rates by 20bps in August. This makes the CNB the first central bank in Central and Eastern Europe (CEE) to turn hawkish and tighten monetary policy since 2012. In anticipation of the rate hike, the koruna broke through long-term resistance at around CZK26.00/EUR in early October and strengthened to CZK25.52/EUR at the time of writing. However, with no more rate hikes planned for 2017 and inflation likely to continue rising over the next few months, the unit will likely trade sideways in the short term, in light of the deeply negative real interest rates.

Fundamentals Favouring CZK
CZK/EUR Exchange Rate (Monthly)
Source: Bloomberg, BMI

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