Home Most Popular The Czech National Bank Set to Maintain 50-Basis-Point Rate Cut

The Czech National Bank Set to Maintain 50-Basis-Point Rate Cut


By Jason Hovet

Predictions Point to Continued 50-bp Rate Cut

PRAGUE, March 15 (Reuters) – The Czech National Bank is expected to announce another 50-basis-point interest rate cut next week, according to a recent Reuters poll. This decision comes amidst a backdrop of a weaker crown and persistent price pressures, which have tempered expectations of a faster pace of monetary easing.

Background on Recent Rate Cuts

Over the past few months, the central bank has implemented rate cuts of 25 and 50 basis points in December and February, respectively. These moves have been part of an easing cycle that has effectively reduced borrowing costs from levels not seen in over two decades.

Current Economic Landscape

Despite a rapid decline in inflation – which reached the central bank’s 2% target last month for the first time since 2018 – there are still significant price increases in the services sector. Moreover, the crown remains weaker than what policymakers had initially anticipated.

Market Sentiments and Analyst Projections

Recent statements from central bankers have underlined a cautious and gradual approach to the ongoing easing cycle. This stance has led to a reduction in market expectations regarding the size of the impending interest rate cut. Analysts like Citi economist Jaromir Sindel have pointed to elevated non-tradable core CPI growth as a factor favoring a 50-basis-point cut over a 75-basis-point one.

Consensus on Rate Reduction

All fourteen analysts participating in a Reuters poll anticipate that the central bank’s seven-member board will agree on a 50-basis-point reduction at its upcoming meeting on March 20. This adjustment would bring the two-week repo rate (CZCBIR=ECI) to 5.75%.

Projections for Future Rates

The median forecast from the poll suggests that the key rate will reach 3.50% by the conclusion of 2024, compared to a previous estimate of 4.00%.

Impacts of Rate Cuts on the Czech Crown

The Czech crown (EURCZK=) experienced a dip to two-year lows below 25.50 against the euro in February following an escalation in the pace of rate cuts. However, it has since recovered to the range of 25.20-25.30, partly due to the central bank’s communication about a gradual easing strategy.

Insights from Policymaker Jan Kubicek

One of the policymakers, Jan Kubicek, mentioned in an interview with Reuters that the devaluation of the crown – currently below the bank’s assumption of a first-quarter exchange rate of 24.70 – has provided some form of monetary easing. Given this scenario, the bank is positioned to continue with a 50-basis-point reduction.

(Reporting by Jason Hovet; editing by Christina Fincher)

(([email protected]))

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.