Uncertainty Over the Outcome of Czech National Bank’s Interest Rate Decision

Yesterday, the banking council of the Czech National Bank (CNB) met to discuss setting interest rates. The outcome is currently uncertain, with analysts expressing shared concerns. While the economic situation may suggest an initiation of a decrease from the current seven percent base interest rate, the banking council may also be wary of the yet unknown extent of January’s price list adjustments and their impact on inflation.

“The consumer prices have not been growing significantly for about three quarters of a year, so we can say that inflation mania is no longer continuing,” said the chief economist of Cyrrus, Vít Hradil. However, November’s inflation of 7.3 percent is, according to him, distorted by a significant price jump in January and the statistical impact of last year’s energy-saving tariff. Hradil expects the base rate to be reduced to 6.75 percent.

According to the chief economist of Patria Finance, Jan Bureš, macroeconomic data indicate a fading of inflationary pressures. However, the upcoming meeting of the banking council remains uncertain. More cautious members may be concerned about high inflation expectations and a more substantial effect of January’s repricing.

Raiffeisenbank analysts also see uncertainty for the CNB’s decision in January’s price list adjustments. “Some members of the banking council will want to wait until the February meeting when the final result of January’s inflation won’t be available, but the banking council will probably work with at least a partial indication regarding strength and direction,” they said. On the other hand, they believe the banking council must also consider the adverse economic situation, considering a quarter-point rate cut slightly more likely.

Jan Vaisová, a mortgage specialist at FinGO, stressed that commercial banks have already begun to lower mortgage rates. “You can see that banks are preparing for a reduction in the base rate, which could force the CNB to start lowering the rate faster,” Vaisová said. Despite the uncertainty, many are hopeful for a proactive stance from the CNB in the face of these financial shifts.