Czech Republic: CNB slows pace of loosening cycle in August
At its meeting on 1 August, the Board of the Czech National Bank (CNB) lowered the 2-week repo rate by 25 basis points to 4.50%. Moreover, the CNB lowered the discount and Lombard rates by the same amount to 3.50% and 5.50%, respectively. The cuts, which followed June’s 50 basis point reduction, had been priced in by markets as the Bank did not deviate from the path it had hinted at before the meeting. August’s decision was unanimous, unlike June’s.
The decision was driven by the CNB’s assessment that price stability has been restored: Headline inflation has been close to the CNB’s 2.0% target so far this year. That said, the Bank noted upside risks to the inflationary outlook remain and deemed it necessary to maintain a restrictive monetary policy approach.
The Central Bank’s communiqué was void of explicit forward guidance, and its tone was unchanged from June’s meeting, stating that the rate reductions can be paused or terminated at any time once interest rates approach their neutral level. The majority of our panelists expect 50–75 basis points of additional cuts by end-2024, while a small minority sees rates ending the year at current levels. The CNB will reconvene on 25 September.