The Czech National Bank (CNB) lowered its interest rate by further 0.25 basis points to 4.50% at its monetary meeting on August 1.

It marks a slowing down in the easing cycle after the CNB lowered interest rates by 0.50bp at each of its previous four meetings this year. Interest rates are now at their lowest since February 2022.  

All seven board members voted for the motion and the CNB stated that “monetary policy remains strict. Real interest rates are positive and the lower the loan activity, so the production of money in the economy, and consequently inflation.”

The lowering of rates was widely expected, with some market analysts eyeing whether CNB would continue lowering rates by a more substantial cut as CNB vice-governor Jan Frait did not rule out lowering by 0.50bp in an interview for Bloomberg in July.

“It is true that some analysts really expected that the central bank would lower interest rates slower,” head economist at the Czech Banking Association Jakub Seidler was quoted as saying by Czech Television (CT), adding that “some players on the market were not so sure”.

Analysts surveyed by the Czech Press Agency (CTK) do not expect the lowering to have a substantial effect on the bank loan rates and mortgages, but deposit rates at banks are expected to go down.   

“Banks have not yet responded to lowering of rates and even after today we do not expect cheaper mortgages,” Jana Vaisova, an analyst at FinGo,  was quoted as saying by CTK.  

The CNB began the easing cycle in December after keeping interest rates at 7% since the current governor Ales Michl took over in mid-2022. It defied the market consensus in June when it lowered rates by 0.50bp.

Czech inflation eased to 2% year-on-year in June after it grew by 2.6% y/y in May.

The CNB also lowered its outlook of the country’s economy in the published overview of the summer forecast to 1.2% growth this year, 2.8% next year and 2.4% in 2026 – it expected 1.4% growth for 2024 in May.

The CNB also forecasts inflation to oscillate around 2% in the coming months and average at 2.2% this year, 2% next year, and 2% in 2026.

The Czech economy grew by 0.4% y/y in the second quarter of 2024, according to the preliminary estimate released by the Czech Statistical Office (CZSO) this week. This is well below the CNB forecast of 0.7%.