The Czech National Bank (CNB) kept interest rates at the current level of 4% at its board meeting on December 19 as per market expectations.

The CNB therefore temporarily halted its one-year cycle of lowering rates, which began last December and brought rates down from 7%, where they had been since the summer of 2022.

“The process of disinflation is not over. For these reasons the board decided to halt the process of lowering the interest rates for now,” CNB governor Ales Michl told media at a press conference.

“The goal is to have the overall inflation stabilised in the long term around the 2% target of CNB,” Michl added. Czech inflation stayed at 2.8% in November after accelerating from 2.6% in September.

Five central bankers backed the decision while two voted for continued lowering of interest rates by 0.25 basis points. Michl said that the two board members pointed to weaker economic developments abroad which could overspill to Czechia.

Michl added that the bank board is “leaving all the doors open” ahead of the next monetary meeting in February and that he anticipates the decision-making to be between keeping the 4% level or lowering by 0.25bp.

CNB also stated that the 1.3% GDP growth of the country’s economy in the third quarter was driven mainly by household consumption, while foreign demand “remains weak,” which “together with subdued sentiment leads to low investment activities of companies”.

CNB assessed the risks and uncertainties as  “mildly inflationary” and singled the price growth in services or price development of commodities on world markets.   

Market analysts surveyed by the Czech Press Agency (ČTK) expect CNB to return to the policy of lowering interest rates next year, though there are varying views on when. 

“The weaker koruna [domestic currency/CZK] will increase the likelihood that CNB will lower interest rates at a slower pace. On the other hand, a stronger koruna can force the CNB to lower interest rates faster,” an analyst from the Akcenta consultancy, Miroslav Novak, was quoted as saying by ČTK.