Rates unchanged at 7 percent[1]

Interest rates were left unchanged by the CNB Bank Board. Thus, the discount rate is still at 6%, the Lombard rate is still at 8%, and the two-week repo rate (2W repo rate) is still at 7%.

The interest rates set by the CNB are reducing constraints on domestic demand. They are reducing the growth of loans made to individuals and businesses, which will also reduce the amount of money in circulation. The Bank Board concurred that prudent budgetary policies and reasonable wage demands are also necessary for long-term price stability. The Bank Board will review new information after waiting for more. At the next meeting, it will determine whether to raise or maintain interest rates – as it can be seen in the Statement of the Bank Board.

Inflation is expected to increase even more during the next three months, according to CNB's projection. Gas and electricity rates will be the major causes of the increase. Inflation is predicted to peak at roughly 20 percent in the fall and average 16.5 percent for the whole year (in our spring forecast we expected 13.1 percent). In a year and a half, the estimate predicts, inflation will drop to about 2%.

Although I rarely express opinions on central bank policies, I think this is a smart move. And that the additional impact on taxpayers due to already relatively high interest rates would harm the export-oriented economy.

Technical view

The USDCZK is on an interesting path. Since the beginning of the year, the pair went up slightly more than 11.5 percent.* But the interesting part is that on the Chart 1, we can se formation of the rising wedge pattern.  Not only its formation, but it seems to be nearing its end, and we could see its breakdown as well.[1]

*

Chart 1: USDCZK value, daily timeframe (source: tradingview.com)

At the same time, the divergence between the rising price and the falling RSI indicator is visible. In this way, we have two rather strong signs that indicate a possible change in the trend of the value of this currency pair.

If the Pivot zone is not broken during the retest, it can be opened as a short position. The first target could be around Support zone 1 and the second target around Support zone 2.

Overview report prepared by Jozo Perić, Analyst of CapitalPanda

[1] Forward-looking statements are based on assumptions and current expectations, which may be inaccurate, or based on the current economic environment which is subject to change. Such statements are not guaranteeing of future performance. They involve risks and other uncertainties which are difficult to predict. Results could differ materially from those expressed or implied in any forward-looking statements.

*Past performance is no guarantee of future results.

[1] CNB: https://www.cnb.cz/en/