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Ad-hoc reports: Koruna unlikely to weaken further, despite faster CNB cuts due to lower inflation

22/02/2024 11:57

Given the lower January figure, we have revised our inflation estimate for this year from 2.7% to 2.1%. Both headline and core inflation are likely to remain within the CNB’s tolerance band for the rest of the year. Given that fact, combined with the weak economy, we expect the CNB to cut rates at a faster pace. We forecast 75bp cuts in both March and May and a repo rate of 3.5% by the end of the year. Shorter-maturity market rates should continue to fall, while we do not see similar scope for longer maturities. The weakening of the koruna against the euro over the past six months has largely been due to the narrowing of the interest rate differential, but we do not expect this to continue. In contrast, the koruna could strengthen slightly by end-2024, supported by a recovery in domestic and external demand and a weakening of the US dollar.

Autor: Jaromír Gec,Martin Gürtler
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