The Czech National Bank reduced its two-week repo rate by 25 basis points to 4.50% at its 1 August 2024 monetary policy meeting, in a unanimous seven-member vote, a smaller step than at the four preceding decisions, from February to June 2024, when the Bank Board had applied 50 basis-point reductions.
The smaller step followed guidance given in June, when the Bank Board said it was likely to slow the pace of easing at the meetings ahead as rates approached neutral levels; in August it added that the rate-reduction process could be paused or terminated at any time at levels that were still restrictive.
INFLATION AND RISKS
The Bank Board noted that inflation had been close to the 2% target since the start of the year, and exactly 2% in February, March and June, so that price stability had been restored, although it said the fight against inflation was not over. At the same time, the board listed wage pressures, excessive public spending, persistent services inflation and a possible acceleration of property lending as upside risks to inflation.
The new forecast projected GDP growth of 1.2% in 2024, accelerating to 2.8% in 2025, and the board cited weaker German – and hence Czech – economic output as a significant downside risk.
POLICY RATE LEVEL
The 4.50% two-week repo rate compares with the 7% peak reached during the tightening cycle.