Czech central bank cuts rates with more reductions expected

The move is in line with dovish signals from other central banks, notably rate cuts from the Fed and the ECB.

The Czech Republic’s central bank has cut its key interest rate for the seventh time in a row, in a response to slowing inflation.

The cut, which had been predicted by analysts, brought the interest rate down by a quarter-point to 4.25%.

The bank started to trim borrowing costs in December last year, the first cut since June 2022.

The most recent reduction follows a decision from the US federal reserve to lower its benchmark interest rate by a half-point last week, the first time the US central bank had lowered borrowing costs in more than four years.

The European Central Bank, meanwhile, reduced its deposit facility rate by a quarter-point to 3.5% earlier this month.

Pressure for Czech policymakers to lower borrowing costs was boosted by slower-than- expected wage growth.

The average real monthly wages in the Czech Republic grew 3.9% year-on-year in the second quarter of 2024.

That was down from a 5% rise in the previous three-month period and below market forecasts.

The size of the Czech economy was, however, up by 0.6% year-on-year in the second quarter of 2024, rising from the 0.3% recorded in the previous quarter.

The bank predicts growth of 1.2% for 2024.

Inflation in the Czech Republic was at 2.2% year-on-year in August, the same as the previous month and close to the bank’s target of 2.0%.