Czech National Bank reduces rates by 25 basis points

The Czech National Bank (CNB) has cut rates by 25 basis points.

In its press release today (May 7), the bank said it had made the “very cautious” decision to keep monetary policy tight as both data and forecasts showed that real interest rates were close to its own.

The key policy rate, the two-week repurchase rate, is now 3.5%, while the Lombard rate is 4.5% and the discount rate 2.5%.

The CNB added that six of its board members had voted in favour of the decision, while one had voted to leave rates unchanged.

The bank said the Czech economy was “gradually recovering”, with GDP rising by 0.5% quarter on quarter and 2% year on year during Q1. It added that the growth had mainly been driven by household consumption, and that unemployment remained low.

Annual wage growth in the private sector stood at 8.3% in the final quarter of 2024, the CNB said. It noted that this was one of the reasons for the high levels of services inflation.

The bank said that wage growth and services inflation, along with “significantly” increasing property prices, posed risks to long-term price stability. However, it added that inflation metrics more broadly had been within target since January 2024.

“Stronger inflation pressures from the domestic economy are limiting room for further rate cuts,” it noted.

The CNB said external demand for Czech goods remained “subdued” as European industry continued to slump. This, it said, was a result of high energy prices, structural problems and uncertainty over US trade policy.

Commodity prices had “declined substantially” around the world this year, the bank noted, and international institutions had lowered their forecasts for global economic growth.

The CNB said the impact of tariffs on growth and inflation could not be reliably assessed at the moment as the “specific forms” of the levies remained unknown.