Economists at Commerzbank analyze EUR/CZK outlook.
EUR/CZK to drift lower through H2 2023
We expect EUR/CZK to drift lower through H2 2023 as inflation as well as the real economy moderate. CNB, however, will likely maintain monetary policy status quo despite such a downturn. If inflation were to moderate from current 11% level towards 6%-7%, then CNB’s 7.00% benchmark rate will no longer appear too low; the real interest rate will become neutral or positive. This will make CNB’s stance hawkish relative to the economic context, which will likely support the Koruna through H2 2023.
The key risk is that inflation may not moderate in the medium-term, which will once again affect CNB’s credibility. What is more, controversy has broken out between government and central bank because the latter criticises the expansionary fiscal stance for being the main culprit behind high inflation. Such developments could add volatility to the CZK again next year if inflation were to prove stubborn as we anticipate.
Source: Commerzbank Research
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