MNI CNB Review - September 2023: Rate-Cut Strategy Is Ready

Executive Summary:

• The Bank Board unanimously decided to keep rates unchanged.
• Officials discussed the strategy for future easing but failed to provide details.
• Monetary policy meetings will be live from now on.

MNI CNB Review - September 2023.pdf

The Czech National Bank (CNB) unanimously decided to keep the two-week repo rate unchanged at 7.00%. The on-hold decision was widely expected and hence caused little stir on Czech financial markets. The accompanying communique signalled a further shift towards the easing cycle, albeit market participants looking for more clarity on the timing and magnitude of future cuts were left disappointed. Governor Ales Michl resigned from repeated pushbacks against overdone market pricing but also flagged concerns about sticky core inflation and said that he would be willing to accept a temporary undershoot of the inflation target.

This week’s meeting marks another step in the CNB’s gradual pivot towards an easing cycle but the Bank Board was economical with clues about the likely timing of the start of rate-cutting or its likely trajectory. However, by confirming that it has drawn up the strategy and signalling data-dependence, the Board expressed readiness to take action at any of the coming meetings. We think that rate cuts by the end of 2023 cannot be ruled out, although the CNB’s relatively hawkish posturing speaks against this scenario. Incoming data from both Czechia and the Eurozone may provide more clarity on the rate outlook.