Inflation remains elevated Inflation is being supported by rising oil prices. Core inflation is falling only very slowly. Next year, we expect inflation to slow to 2%, with import prices having a disinflationary effect.

CNB interest rates are likely to remain low until November, when we expect a first hike This would likely trigger a gradual normalisation of monetary policy. At end-2022, we forecast the key repo rate to be 1.25%.

Peak interest rates and government bond yields still not on the horizon Interest rates and government bond yields rose sharply in the first quarter. They should continue to rise, albeit at a slower pace. Financial markets appear to count on the CNB raising interest rates. In the CZGB space, the market may be surprised by low supply in the second half of the year.

Coming rate hike is moving the koruna to stronger levels The koruna got rid of its COVID premium in March and has returned to its original strengthening trajectory. The resumption of growth in market rates, combined with global optimism and a stronger euro against the US dollar, should push the koruna to stronger level.

Regards,

Jan Vejmělek,Jana Steckerová,František Táborský,Michal Brožka,Martin Gürtler

Economic and Strategy Research

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