CZ: CNB to carefully consider future rate cuts

Instant Comment , 25. Sep.
Press conference without major surprises

As anticipated, the Czech National Bank (CNB) reduced interest rates by 25 basis points during its meeting today. The CNB persists in its gradual rate-cutting strategy, facilitating a return of inflation to its target level.

I would like to highlight two key points from today's press conference. First, the vote was 6-1, with one board member advocating for a 50 basis point rate cut. This member's primary motivation was a lower perceived risk from inflation. However, the majority of the board preferred to exercise caution, maintain a tight monetary policy, and carefully consider further rate cuts. Second, the Board made no commitments for the next meeting. The future path of interest rates will depend on risk assessments, new data, and the monetary policies of major central banks, among other factors. Thus, several options remain open. This stance contrasts slightly with the market's view, which anticipates a relatively rapid rate cut in the Czech economy.

The exchange rate of the koruna is unlikely to experience significant changes following today's developments, in our view. We see the current EUR/CZK level as being closely aligned with macroeconomic fundamentals.

We are not altering our forecast following today's developments, but we observe an increasing probability of a potential rate cut in December, driven by weak macroeconomic conditions in Germany and declining fuel prices. However, the ultimate decision will hinge on macroeconomic developments and data in the coming months, which likely explains why the CNB Bank Board is intentionally refraining from providing detailed guidance.