Czech Central Bank Holds Rate Steady at 4%, Capital Economics Predicts Resumption of Rate Cut Cycle

The Czech National Bank (CNB) maintained its policy rate at 4.00% on Thursday, pausing the recent series of rate cuts. This has led Capital Economics to predict that the rate-cutting cycle will restart, forecasting a decrease to 3.00% by the end of next year.

The decision to keep interest rates unchanged aligns with analysts' predictions, including those at Capital Economics. This pause marks the first time since the CNB initiated a total of 300 basis points of rate cuts starting in December 2023.

Central Bank officials indicated that they will adopt a more cautious approach to future monetary policy easing as the forecasted policy rate approaches a neutral level of 3.00-3.50%.

Despite the current pause, the inflation outlook remains positive, and further rate cuts are expected to continue into 2025. Inflation has remained consistently within the Central Bank's target range of 1.0-3.0% throughout the year.

Capital Economics anticipates that this trend will continue into next year, with an additional 100 basis points of rate cuts distributed throughout the year, resulting in a policy rate of 3.00% by the end of 2025.

The anticipated policy adjustments are expected to position the Czech Republic among the few emerging markets (EM) returning to a neutral monetary policy stance.