CZ: Future decisions data-driven

At its meeting today, the CNB left interest rates unchanged. This marks the first such decision since the end of last year, following rate cuts at the previous eight meetings. The decision aligns with both our expectations and those of the market.

Today's vote was 5:2, with two board members voting for a 25-basis-point rate cut. The likely reason for their vote in favor of further monetary easing is the weak performance of the German economy and the risk of its anti-inflationary impact next year.

At the next meeting, the CNB will likely again decide between maintaining stable rates and a slight reduction. The CNB communicated today that it is pausing rate cuts but did not specify the duration. The decision will depend on new data and information, including the CNB's new forecast, inflation data, the koruna's exchange rate, policies of major central banks, developments in Germany, global and geopolitical risks.

Overall, we expect only very gradual rate reductions towards the 3% level over the next two years. In our forecast, we anticipate the next rate cut at the May meeting, though an earlier reduction (in February or March) cannot be ruled out if certain anti-inflationary risks materialize, such as the continued weakness of the German economy. The market currently expects the next rate cut in February.