Monday, May 3, 2021 5:54 AM EDT
The Czech National Bank is set to stay on hold this Thursday and should reiterate its plan to start normalizing policy rates in 2H21. The new forecast should signal a weaker pace of rate hikes as economic developments in 1H21 should be softer than expected in the February forecast. Still, the CNB is set to point to hikes in 2H21 and we look for two hikes in Q4.
Unsplash
The CNB might revise its below-consensus GDP further lower
- Although 4Q20 GDP developments was somewhat better compared to the CNB February forecast (+0.6 QoQ vs. stagnation), 1H21 was impacted more severely by COVID-19 and subsequent economic restrictions.
-
Gov. Rusnok indicated that he expects 2021 GPD growth below the 2.2% of the last CNB forecast. He added that the forecast was pessimistic and should stay in this mode. This explains why the CNB forecast has been below market consensus as current GDP expectations are hovering around 3% (this is also the latest MinFin projection). Despite weaker GDP growth, Rusnok confirmed that a plan to start rates normalization in 2H21 remains in place, with the August meeting (ie the new forecast meeting) being the first realistic point to start the debate about rate hikes.
-
The CPI outlook remains more pro-inflationary due to commodity price increases. 2021 average inflation is heading towards 2.5% (vs. 2.0% in the last CNB forecast), confirmed also by Gov. Rusnok. Still, inflation uncertainty remains high due to the pandemic situation and lockdown effects. March CPI accelerated to 2.3% YoY and we expect further acceleration in the months to come due to a low-base in oil/fuel prices, which will push YoY dynamics higher.
Pixabay
We continue to expect 2 hikes in 4Q 2021
Although the worsened pandemic situation in 1Q21 has delayed the start of the recovery, recent signals from CNB Board members suggest that rate hikes in 2H21 remain very likely. As such, we continue to expect two 25bp hikes in 4Q21 as the most likely scenario. We also don’t rule out a one-off 50bp hike - most likely in November. An earlier hike (in August) is still possible, but only if the pandemic situation improves significantly in 2Q, accompanied by a strong pace of vaccination.
Disclaimer: This publication has been prepared by the Economic and Financial Analysis Division of ING Bank N.V. (“ING”) solely for information purposes without regard to any ...
more
Disclaimer: This publication has been prepared by the Economic and Financial Analysis Division of ING Bank N.V. (“ING”) solely for information purposes without regard to any particular user's investment objectives, financial situation, or means. ING forms part of ING Group (being for this purpose ING Group NV and its subsidiary and affiliated companies). The information in the publication is not an investment recommendation and it is not investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Reasonable care has been taken to ensure that this publication is not untrue or misleading when published, but ING does not represent that it is accurate or complete. ING does not accept any liability for any direct, indirect or consequential loss arising from any use of this publication. Unless otherwise stated, any views, forecasts, or estimates are solely those of the author(s), as of the date of the publication and are subject to change without notice.
The distribution of this publication may be restricted by law or regulation in different jurisdictions and persons into whose possession this publication comes should inform themselves about, and observe, such restrictions.
Copyright and database rights protection exists in this report and it may not be reproduced, distributed or published by any person for any purpose without the prior express consent of ING. All rights are reserved. ING Bank N.V. is authorised by the Dutch Central Bank and supervised by the European Central Bank (ECB), the Dutch Central Bank (DNB) and the Dutch Authority for the Financial Markets (AFM). ING Bank N.V. is incorporated in the Netherlands (Trade Register no. 33031431 Amsterdam). In the United Kingdom this information is approved and/or communicated by ING Bank N.V., London Branch. ING Bank N.V., London Branch is deemed authorised by the Prudential Regulation Authority and is subject to regulation by the Financial Conduct Authority and limited regulation by the Prudential Regulation Authority. The nature and extent of consumer protections may differ from those for firms based in the UK. Details of the Temporary Permissions Regime, which allows EEA-based firms to operate in the UK for a limited period while seeking full authorisation, are available on the Financial Conduct Authority’s website.. ING Bank N.V., London branch is registered in England (Registration number BR000341) at 8-10 Moorgate, London EC2 6DA. For US Investors: Any person wishing to discuss this report or effect transactions in any security discussed herein should contact ING Financial Markets LLC, which is a member of the NYSE, FINRA and SIPC and part of ING, and which has accepted responsibility for the distribution of this report in the United States under applicable requirements.
less
How did you like this article? Let us know so we can better customize your reading experience.
