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Czech Republic Monetary Policy December 2023

Czech Republic: Czech National Bank kicks off policy easing at last meeting of 2023

At its 21 December meeting, the Board of the Czech National Bank (CNB) cut the 2-week repo rate to 6.75% from 7.00%, matching market expectations. In addition, the CNB reduced both the Lombard rate and the discount rate by 25 basis points to 7.75% and 5.75%, respectively. All seven board members voted to cut rates.

The Bank decided to ease its monetary policy stance as it expects inflation to continue declining in 2024. That said, it stated that the pace of easing must be gradual due to upside inflationary risks stemming from unanchored inflation expectations and indirect tax hikes. Inflation fell to 7.3% in November from October’s 8.5%, coming in slightly above the Bank’s forecast. Meanwhile, the CNB expects inflation to fall to the upper boundary of the 2.0–4.0% inflation target at the start of 2024.

Looking ahead, the Bank said that it will base future decisions on incoming data and its alignment with the Bank’s macroeconomic expectations. It also warned that “the interest rate reduction process can be paused or terminated at any time at levels that are still restrictive if inflation does not decrease in line with the forecast”. Our panelists expect the CNB to cut rates further by 150–375 basis points in 2024 due to declining price pressures.

The Bank’s next meeting will be on 8 February.

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