The first meeting of the CNB this year brought a revised macroeconomic forecast, but no revolution in the thinking of central bankers. The new forecast expects cosmetically faster growth, a stronger CZK and lower inflation this year. However, they also wants the central bank to start raising interest rates this year … although, contrary to the November forecast, only from mid-2021.
However, due to the high uncertainty associated with the further development of the pandemic, central bankers still take their own forecast a bit with the “reserve”. Governor Rusnok’s words are “the risks associated with the forecast are significant” and skewed towards a “slower recovery”. According to the CNB, this year the economy should grow by 2.2 percent (our estimate is 3.5 percent) and inflation will slow to 2 percent.
The CNB’s more conservative estimates and central bankers’ concerns about risks and uncertainty are certainly right at the moment. Judging by the mobility index mapping the movement of the population in shops and transport, conditions in the services sector have once again cooled sharply after the December easing. Apart from hospitality, hospitality and culture, the most vulnerable, according to our estimates, are clothing and textile stores and, in general, smaller stone shops. Tough conditions at the beginning of the year and a slower start of vaccination are unlikely to give the economy too much rest until the spring months, and are a good argument for not considering rising rates yet .
However, if the pandemic actually subsides in the second half of the year, the forecast will clearly show central bankers interest rates rising . Unlike November, the central bank is already counting on a faster strengthening of the koruna. According to the new forecast, the koruna should reach EUR / CZK 25.40 by the end of the year (approximately in line with our outlook). And a strong currency does not necessarily stand in the way of higher interest rates. However, the question is whether the CNB’s better economic prospects and hawks will not start the koruna to more significant profits in the second half of the year.
Source: Jan Bureš, Patria Finance
