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Czechs offer chance of a rate rise

Just when you thought Super Thursday couldn’t get any more super, fastFT steps in to remind you that it’s also time for the latest rates pronouncement from the Czech Republic, and there’s a decent chance of that rarest of things in Europe: a rise in rates.

The CNB abandoned its hard upper limit on the value of the koruna in April, but the climb in the currency since has been contained; the euro now stands at just over CZK26 after the CZK27 lower limit was removed.

But the economy has been looking bright, and roughly half of analysts expect a hike. ING’s Petr Krpata writes:

We look for a 20bp hike as we see no relevant reason to postpone policy normalization. Wages are accelerating, core inflation is high and house prices are soaring.

The CNB should also take comfort from the recent limited pace of koruna gains despite the sharp re-pricing of market rates outlook. Expect the euro to re-test the CZK26.00 level, but overcrowded positioning should limit the downside.

BBH, meanwhile, thinks the central bank will hold fire:

We lean toward no hike now, but view it as very likely at the next meeting on September 27. Note that the central bank estimates that a 1% koruna appreciation has an impact that’s equivalent to a 25 bp rate hike.

With the CNB likely to be the first in Europe to hike rates, we think the koruna will continue gaining. The euro is on track to test the October 2013 low near CZK25.4840, which was right before the floor was instituted.