MNI CNB Preview - June 2024: To Slow Or Not To Slow

Executive Summary:

• The Bank Board's rate decision will be between -25bp and -50bp.
• Several CNB members flagged their indecision ahead of the meeting.
• Most analysts expect a 25bp cut; most admit it's a very close call.

Full preview including summary of sell-side views here:

MNI CNB Preview - June 2024.pdf

Following a series of nimble 50bp cuts to the two-week repo rate, the next monetary policy decision presents the Bank Board with a tough dilemma. While the continuation of monetary easing is all but guaranteed, policymakers will debate whether to loosen policy at the current pace or reduce the pace of easing to 25bp. Unusually ambiguous messaging from Czech central bankers and mixed signals sent by recent macroeconomic data make it a very close call. Several policymakers explicitly admitted that they have not yet made their minds and both scenarios are on the table. Meanwhile, inflation remains within the CNB’s target range but rising wages and the recovery in consumption keep Czech policymakers on their toes.

In our view, with interest rates at their current restrictive levels and inflation stabilising within the tolerance band, the CNB has sufficient room to deliver another 50bp cuts and offer some further reprieve to the economy. This would fall in line with comments from ex-CNB Governor Miroslav Singer, who told MNI in an exclusive interview that weak growth, a stronger koruna and on-target inflation should encourage the central bank to deliver another 50bp cut at this meeting. However, we can envisage the CNB reducing the pace of easing to 25bp and pointing to lingering inflationary risks, which necessitate cautious approach. Against the backdrop of CNB communications signalling the indecision of most central bankers as they head into the meeting, we concede that the odds of both scenarios are almost equal. For the record, the market is leaning towards a 25bp cut, an outcome expected by 20 out of 25 economists participating in Bloomberg’s survey.