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Czech Republic Monetary Policy September 2023

Czech Republic: Czech National Bank leaves rates unchanged in September

At its 27 September meeting, the Board of the Czech National Bank (CNB) left the two-week repo rate unchanged at 7.00%. In addition, the CNB left both the Lombard rate and the discount rate unchanged at 8.00% and 6.00%, respectively.

The Bank was likely driven by the belief that a cumulative 675 basis points of rate hikes from mid-2021 would be enough to tame price pressures; by August this year, inflation was less than half its January level, and the Bank said it judged the current monetary stance appropriate for inflation to return to the 2.0% target in 2024.

Looking ahead, the Bank did not explicitly say in which direction interest rates would move going forward. Panelists are split on the outlook for this year, with some seeing rates unchanged and others seeing cuts. However, all our panelists expect the CNB to have begun monetary easing by end-2024, and no panelists see further rate hikes from current levels.

On the outlook, Erste Bank’s Jiri Polansky said:

“We still expect the first rate cut in November and then in December (both by 25 points). The risk is tilted towards the beginning of next year. Whether the CNB starts reducing rates at the end of this year or waits until 1Q24, rates could fall relatively quickly in 2024.”

In contrast, Goldman Sachs’ analysts are somewhat more hawkish:

“Our Czech rate forecast envisages a 25bp cut by year-end (which is less than the market is pricing in) but rapid rate reductions through 2024. While we continue to forecast one cut by year-end, today’s unanimous vote and relatively hawkish communication skews the risks towards the easing cycle starting in 2024Q1.”

The next monetary policy meeting is scheduled for 2 November.

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