Czech National Bank’s 50-Basis Point Interest Rate Cut Above Expectations, But Policy Still Deemed Restrictive
February 8, 2024
A initial 25-basis point reduction of the CNB 2-week repo rate in December has been followed by a half percentage point cut at the first scheduled review of 2024. One of the seven policymakers favored cutting the rate by 75 basis point this time. Czech GDP contracted 0.4% on average in 2023, including a 0.2% on-year slide in the final quarter, and consumer price inflation has receded from 18.0% in September 2022 to 6.9% this past December. The bank’s statement explaining today’s action affirms the need for continuing caution in exiting what officials still deem to be a restrictive policy stance.
The Bank Board assessed the risks of the forecast and the uncertainties of the outlook as being broadly inflationary. A slower decline in the elevated inflation expectations is a risk in this direction. Given the tight labor market, this could be reflected in higher wage demands. Higher-than-expected inertia in services prices and a halt in tradables disinflation, which has so far been due mainly to fading supply-side problems, are additional upside risks.
The CNB interest rate had been 0.25% from May 2020 to June 2021 during the worst of the Covid pandemic. A cumulative increase of 350 basis points over the balance of 2021 was augmented by an additional 325 basis points during the first half of 2022. Inflation is targeted at 2.0% over the medium term.
Copyright 2024, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: Czech National Bank
ShareThis
