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.