MNI CNB WATCH: 25BP Cut To 3.75%, Highlights Risks
MNI (LONDON) - Czech National Bank rate-setters voted unanimously to cut interest rates by 25bps as expected on Thursday, reducing the 2W-Repo rate to 3.75%. (See MNI EM CNB WATCH: Steer Means 25Bps Cut To 3.75% "Very Likely")
While short-term inflationary risks have yet to materialise and external demand remains subdued, further monetary policy easing will be approached with “great caution,” a CNB statement said.
“It is therefore possible that monetary policy will remain slightly restrictive for longer than expected in the baseline scenario.”
Interest rates remain “significantly positive” in real terms, it said, as easing resumed after December's pause in the cycle. January’s headline inflation 2.8%, versus 3.0% in December, was higher than expected. (See MNI EM INTERVIEW: Czech National Bank May Hold In Dec-Zamrazilova)
Having previously stated its determination to continue with "tight monetary policy in order to maintain inflation near the 2% target in the long term," the Bank Board instead said it would “continue its monetary policy" in order to do so. "At present, this still requires relatively high key interest rates.”
Inflation is forecast to average 2.4% this year - with a slight upside risk - and 2.1% next year, the CNB said. GDP is expected to grow by 2% this year, driven mainly by household consumption, and by 2.4% in 2026.
Upside risks to the inflation outlook include sticky food and services prices, higher public spending, rising wage demands, and increased money creation due to a significant recovery in lending, particularly mortgages.
Significant downside risks include weaker global, and particularly German economic activity. “The impact of some of the actions by the newly elected U.S. administration represents a source of uncertainty for prices,” the Bank said.