• CNB took an extremely surprising move today when it cut rates by 25 bps to 0,75%. Given the recent turmoil on FX markets this was expected by almost no one.

  • We do not what drove the decision - macro picture keeps improving, CZK got above 26 and although the inflation is OK for the moment (some 0,2 p.p. lower for 1Q/10¬† than the January CNB forecast) it will start rising in 2H/10. One of the reasons for cut may be that it is pre-emptive step in expectation of weakening of the activity due to premature fiscal consolidation in the south. This looks like an academic thinking to us but...

  • Anyway, we'll see after the press conference. CZK weakened to around 26.06, short-end further down. Once the situation abroad calms, we may be in for another CZK-as-a-funding-currency¬† episode... Long PLNCZK?¬†