MNI CNB WATCH: Close Call Between 50 or 25Bp Cut, Policymakers Admit

The Czech National Bank will decide whether to stick with its 50-basis-point-per-meeting easing pace or to slow interest rate cuts to 25bp on Thursday, with governor Ales Michl not alone among Bank Board members in indicating that since monetary policy would remain restrictive in both cases, neither option is off the table.

“There is a certain degree of satisfaction, but of course it’s not a full victory yet,” Michl told reporters last week, adding that while he prefers to keep rates higher for longer, cuts of a quarter or a half-point are “equally possible.”

With growth weak, the koruna strong and CPI inflation on target at 2.6%, with core inflation less than expected at 2.5%, there may be scope to lower the 2W repo rate from 5.25% to 4.75%, as indicated by former CNB governor Miroslav Singer. (See MNI EM INTERVIEW: CNB Leaning Towards 50BP Cut - Ex-Governor Singer)

Conversely, service sector price growth and strong pay gains suggest upside risks to the inflation outlook are not entirely absent, therefore while a 50bp cut remains possible, it would not be a surprise were the Board to move more conservatively.