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The EUR/CZK currency pair is expected to head towards the 25.00 mark over the coming quarters, according to the latest research report from Commerzbank.
Czech CPI data for the headline rate in December was in line with market expectations at 2.4 percent y/y, but undershot CNB's own monthly forecast of 2.5 percent y/y. CNB estimates that "monetary policy relevant" inflation (which excludes tax changes) stood at a lower 2.3 percent in December, with slower core inflation responsible for the downward surprise.
Indeed, CNB economists summarised yesterday's data by stating that inflation pressure remains pronounced, which reflects faster wage growth amidst robust growth in the domestic economy; growth in domestic costs was expected to record a further increase in the short-term owing to labour market tightness, after which they are likely to moderate because of the stabilising effect of monetary policy and koruna appreciation.
"In other words, the assessment is that monetary policy needs to get tighter before it will have its desired effect. We hold on to our base-case that the central bank will raise the benchmark rate by 25 bps on February 1," the report added.
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