MNI CNB WATCH: Rate Held At 4.0%; Inflation Rise 'Temporary'
MNI (LONDON) - The Czech National Bank paused the easing cycle “for the time being” on Thursday, with headline inflation expected to rise “temporarily” due to food price increases and base effects, before returning to the upper half of the tolerance band early next year. (See MNI EM CNBWATCH: Policy Hold Seen, Cuts To Start In Q1 2025)
With the 2W repo rate held at 4%, monetary policy is still in restrictive territory, the Bank Board said in a statement. Disinflation will be further helped by significantly slower growth in administered prices with future decisions based on assessment of data.
As expected, GDP rose by 1.3% year-on-year in Q3 driven mainly by household demand, while there is evidence of labour market easing despite low levels of unemployment, the CNB said, adding that external demand remains weak.
The Board will also monitor the actions of key foreign central banks and geopolitical events. It will assess the transmission of interest rate cuts to lending activity, asset prices and subsequently real economic activity and prices it said.
Overall, headline inflation has developed “broadly” in line with the forecast in recent months, the CNB said, with upside risks coming mainly from higher-than-expected inertia in services inflation, potential excessive growth in public sector spending, increased wage demands and global commodity prices, as well as, over the longer-term, a significant recovery in lending activity.