MNI WATCH: CNB Keeps 50Bp Easing Pace, Signals Easing Slowdown

The Czech National Bank lowered key rates by 50 basis points on Thursday, but said the pace of moderation of policy restriction would slow or stop in the second half of the year.

Interest rates remain significantly positive in real terms and are dampening inflation, the CNB said in a statement, after leaving its two-week repo rate at 4.75%, the discount rate at 3.75% and the Lombard rate at 5.75%, 

However, “no further major rate cuts should be expected”, since there are inflationary risks in the outlook which, were they to materialise, would see inflation “diverge for longer from the target towards the upper boundary of the tolerance band” in the quarters ahead.

“As rates gradually approach their neutral levels, the Bank Board is likely to slow the pace of moderation of monetary policy restriction at the meetings ahead or keep rates unchanged for some time.” 

Any further rate cuts will therefore be approached with “great caution,” the Board added.

Analysts had been unsure going into Thursday's policy meeting whether the Bank Board would cut by 50 basis or slow to 25bp, after governor Ales Michl and other officials signalled they were open to both options. (See MNI EM CNB WATCH: Close Call Between 50 or 25Bp Cut, Policymakers Admit)

However, former CNB governor Miroslav Singer told MNI that he expected the Bank to maintain its half-point pace in June. (See MNI EM INTERVIEW: CNB Leaning Towards 50BP Cut - Ex-Governor Singer)