Central European Daily

CNB Board´s regular meeting was the most eye-catching regional event yesterday. As expected, the Board left the current monetary policy setup with a zero repo rate and a floor for the EUR/CZK pair (at 27.0) intact. Updated macroeconomic projection shows that central bankers have been increasingly bullish on Czech GDP growth this year. The Bank now expects that the growth reaches 2.2 % in 2014, while we forecast just 1.5 %. Obviously, the CNB bets on stronger positive impact of (CZK) devaluation. Secondly, the fresh forecast sees interest rates flat at their current very low levels until the start of 2015. Then, according to the CNB staff, monetary policy returns to the conventional regime where interest rates resume their main role. Interestingly, the forecast also sees the average PRIBOR 3M at 1.10 %, which would mean several preceding rate hikes… In our view, it is not consistent to expect an exit from the current regime of currency interventions and, at the same time, to contemplate monetary tightening through rate hikes (which would produce an even stronger upward pressure on the koruna).