CZK: CNB likely to pause in the cutting cycle - ING

The Czech National Bank is very likely to take the first pause in the cutting cycle on Thursday and leave rates unchanged at 4.00%, ING's FX analyst Frantisek Taborsky notes.

Communication set to focus on the February forecast

"The main reason is likely rising headline inflation, which is expected to exceed 3% in December although core inflation remains close to the central bank's 2% target. The December meeting will only offer an update to the November forecast. Thus, the main focus will be the press conference and the question of the February meeting. Our economists believe the pause will continue through February and only the March meeting is live for another rate cut."

"However, January inflation is expected to return to below 3% and risks have been pointing down in recent weeks. Therefore, we believe the February meeting is live and so today we will be looking to see how likely that is. The market has gone too far with hawkish pricing with roughly one rate cut by the May meeting next year in our view. We think interviews have shown a still CNB board in a cutting mode."

"Therefore, we believe the communication today will focus on the February forecast and the January inflation print. At the same time, the vote split in our view adds dovish risk for today with 7-0 as a baseline but a decent chance of seeing one or two votes for a rate cut as well. Overall, we prefer to be on the dovish side given market pricing in rates and expect weaker FX after the meeting today."