MNI CNB WATCH: Czech Cenbank Points To "Modest" Upside Risks

The Czech National Bank cut interest rates by half a percentage point as expected on Tuesday, to take the key two-week repo rate to 5.75%, and said “modest” risks of upward price pressures ahead warrant maintaining a tight monetary policy stance. (See MNI CNB WATCH: 50bp Cut Seen As Bank Opts For Caution)

Stronger wage demands, sticky services prices and the possibility of koruna weakening pose upside risks that could lead inflation - currently on target at 2% - to edge towards the upper boundary of the bank’s tolerance band over coming quarters, the CNB said.

The pace of service-sector price growth is inconsistent with achieving the bank’s inflation target over the longer-term, with core inflation above target at 2.8% last month, the bank said. Fresh growth and inflation forecasts are due in May.

Five of the CNB’s seven-member Bank Board voted in favour lowering rates by 50bps, with two members calling for a 75bps cut. (See MNI INTERVIEW: Czech Rates Too High- Ex-Deputy Governor)

“The Bank Board considers it necessary to persist with tight monetary policy and continue to approach further rate cuts with caution,” it said in a statement, adding that “newly available indicators suggest higher rates compared with the baseline scenario of the current forecast over the entire forecast horizon.”