The board will have a new forecast from the central bank, which will likely be a key factor in its decision-making. Here we see the need for a revision in some places, but overall everything points in a moderate direction. Globally, compared to the November forecast, we expect the CNB to revise downwards both GDP growth and oil rates and prices.
Domestically, inflation has only slightly surprised downwards in the last three months, both for headline and core inflation. Still, we expect some change in the downward profile due to a better outlook for food, energy and oil prices. Regarding GDP, the CNB was the most pessimistic forecaster in the market in November and the incoming data was quite mixed in this regard, so we only expect modest changes here.
In the fourth quarter of last year, the Czech koruna was 0.35% stronger than the central bank’s expectations. On the other hand, it was slightly weaker in January. Overall, we don’t see any significant impact on the new forecast here, but the lower EURIBOR profile after the revision may indicate a stronger CZK in the new forecast, or allow for faster rate cuts in the CNB model. The November forecast called for roughly a 50 basis point cut in the fourth quarter of last year and would reach 3.50% by the end of this year, yielding a total of 350 basis points of rate cuts. As we know, the CNB delivered only 25 bps last year, which should be reflected in the new forecast.
Overall, we expect a slightly steeper rate path again, with a level of 3.00% by the end of 2025, which in our view should have a moderate outcome for the market. As always these days, we can also expect several alternative scenarios, one of which will be the board’s preferred scenario, which will show a slightly slower profile of rate cuts than the base case.