Czech central bank cuts rates with more reductions expected

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%.