Central Bank cuts by 25 basis points in February

Easing cycle resumes, as expected: At its first meeting of 2025 on 6 February, the Czech National Bank (CNB) lowered the 2-week repo rate by 25 basis points to 3.75%, after having stood pat in December. The move was in line with market expectations and supported by all the members of the board.

Monetary policy drivers: The decision aligned with the CNB’s new macroeconomic forecast, which implies a “modest” decline in interest rates in H1 to bolster economic recovery before stabilizing from mid-2025. The Bank noted that short-term inflationary risks had yet to materialize and that external demand remained subdued, reinforcing the move. However, elevated wage growth fanning services inflation and persistent financing of the fiscal deficit continued to exert upward pressure on inflation, likely dissuading the Bank from a steeper cut.

Loosening cycle to conclude in mid-2025: The Central Bank stated that it will “approach any further monetary policy easing with great caution,” given lingering upside risks to the inflation outlook, and hinted that its monetary policy loosening cycle will likely wrap up by H2 2025. As a result, our panelists expect 25–75 basis points of additional rate cuts this year. Stickier-than-expected services inflation and rising international frictions are upside risks. The Bank will reconvene on 26 March.

Panelist insight: Kevin Daly and Basak Edizgil, analysts at Goldman Sachs, stated: “While we expect the Board to remain relatively cautious and fully data-dependent in the short term, we also expect that rates will ultimately decline below neutral (3.00%) by early 2026, consistent with the staff forecast.” Commenting on future CNB moves, Jiri Polansky, analyst at Erste Bank, said: “For the remainder of this year, we expect two more CNB rate cuts (August and November) and an additional one next year. Risks are bidirectional; on one hand, if developments in Germany remain subdued throughout the year, the CNB may be prompted to lower rates more quickly. Conversely, a scenario where the bank board prefers to halt gradual rate cuts at a higher level (3.25% or 3.50%) cannot be ruled out.”

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