Inflation to decelerate Inflation has surprised on the upside this year, but it should decelerate over the coming quarters due to the weaker economic context. Prices of food and energies should act as a disinflationary factor, but inflation is unlikely to decelerate fast due to the weaker CZK.

The CNB is likely to leave rates unchanged until end-2021 According to the central bank, the current level of monetary policy easing is sufficient. The argument against further policy easing is primarily domestic inflation, which remains above the upper limit of the tolerance band and will only slowly return to the target. The economic recovery next year will be on shaky ground and the CNB is unlikely to be in any rush to tighten monetary policy. We do not expect unconventional tools to be used.

Financial markets are evaluating the efforts to combat the coronavirus For the coming weeks, we expect the koruna to reflect the domestic development and government lockdown measures. As the situation calms down, we forecast the koruna to return to stronger levels. The shift to weaker levels again opens up an opportunity for FX hedging at weaker values.

The second wave has returned financial markets to spring levels CZGB yields will likely be supported by the growth of IRS and the high supply next year. However, the short end of the curve should continue to be weighed down by pessimistic investor expectations. The drop in interest rates again opens up attractive hedging opportunities.

Source: Komerční banka