CNB likely to remain committed to its EUR/CZK floor of 27.00 well into H2 2016

Czech Republic's headline inflation came in as a downside surprise over last six months. Inflation came in at 0.1% yoy in November while CNB forecasted it at 0.5%yoy.

The central bank cited that lower than expected food prices are main cause of Novemebr's disappointing inflation report. It also stated that the subdued producer prices in Euro Area and low commodity prices are having deflationary effects on headline inflation.

Oil prices did not yet bottom out. Inflation in EA stays low. Given 50% of Czech's imports came from EA, lack of recovery in the region will continue to have anti inflationary impact on the headline inflation.

"We expect CNB to remain committed to its EUR/CZK floor of 27.00 well into H2 2016. We believe this will be the case due to persistently low headline inflation and risks to inflation on both domestic and external fronts", says RBC Capital Markets.