Bank cuts rates another 25 basis points in November, meeting expectations

Split decision signals the nearing of a pause in the easing cycle: At its meeting on 7 November, the Czech National Bank (CNB) lowered the 2-week repo rate by 25 basis points to 4.00%. The reduction followed September’s same-sized cut and had been priced in by markets. The decision was once again not unanimous, however, with one of the Bank’s board members voting to hold fire and another preferring a 50 basis point cut.

Economic recovery slow and below potential: The decision to lower interest rates was likely aimed at helping the economy, which is recovering only slowly and below potential; the CNB stated that, despite the 300 basis points of cumulative reductions, real interest rates remain positive and monetary policy tight, depressing domestic demand and keeping inflation close to its 2.0% target. That said, the Central Bank said it expects inflation to increase in the short term. Moreover, upside risks remain, namely elevated wage growth and stronger-than-anticipated public spending.

Pause of loosening cycle nears: The Bank’s forward guidance echoed that of its prior meeting, with its latest macroeconomic forecast projecting a decline in interest rates ahead. That said, the Bank indicated that it could pause or terminate the interest rate reduction process in the coming months. A slight majority of our panelists see the Bank’s policy rate ending 2024 at its current level, with the rest seeing room for another 25 basis point reduction at the last scheduled meeting of this year, set for 19 December. In 2025, our panelists see further cuts.

Panelist insight: Analysts at the EIU said: “We expect the CNB to continue to implement 25basis-point interest-rate cuts at upcoming monetary policy meetings, with the two-week repo rate stabilising at 3% by the second quarter of 2025, but there is a risk of sharper interest-rate cuts if economic data disappoint.”

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