The Czech National Bank (CNB) lowered interest rates by 0.50 percentage points to 4.75% at its monetary meeting on June 27.

The CNB maintained the easing cycle which it began with last December, bringing its key rate to the lowest level since April 2022. Five CNB board members voted in favour, while two members voted for lowering rates by 0.25 pp, CNB noted in a statement on the decision.  

The move came as a surprise to domestic market analysts who projected CNB would now ease the rates at a more careful pace.

CNB’s Governor Ales Michl indicated  that the CNB would take a more cautious approach at its next meeting.

“It is more likely that the next step will be either lowering of interest rates by 0.25 pp, or stopping the lowering of interest rates rather than continuing with steps to lower interest rates by 0.50 pp,” Michl said following the meeting.  

“At the same time we are keeping all options open,” he added, highlighting that inflationary risks remain, including higher salary demands, price growth in services and revived loan activity on the real estate market.

The CNB noted that its goal is to stabilise inflation around the 2% long-term target it set earlier. The country's inflation growth eased to 2.6% year on year in May after it accelerated to 2.9% y/y in April.

Emerging Europe Economist Nicholas Farr wrote that “today’s 50bp cut was correctly predicted by only three analysts polled by Refinitiv (ourselves included), while the remaining 11 analysts had forecast a smaller 25bp cut”.

“The lowering of CNB’s repo rate by 0.50 pp is more significant than the financial market expected, which counted on the bank board lowering interest rates by 0.25 percentage point,” analyst at Generali Investments, Radomir Jac was quoted as saying by Czech Television (CT).

CT also noted that the financial market projects an interest rate of close to 4% by the end of this year. Farr and his colleagues "think that interest rates may fall to 3.50% by end-2024" .

CNB’s next monetary meeting is scheduled for August 1.