Prague – The Banking Council of the Czech National Bank (ČNB) will probably reduce the base interest rate by a quarter of a percentage point to 4.25 percent on Wednesday. The majority of analysts contacted by ČTK agree on this, although according to some of them, the conditions in the economy would allow for a faster easing of monetary policy. The Bank Board reduced the base interest rate by a quarter of a percentage point in August as well, having previously made a double step four times.
“At the September meeting of the Bank Board, I expect a discussion between reducing the base interest rate by 0.25 or 0.5 percentage points. Domestic interest rates remain relatively high and the inflationary situation does not appear to still require such strictness. Household consumption, credit volumes, or the overall economic “activity is not accelerating to such a degree that there is a threat of a renewed buying frenzy. On the contrary, the Czech economy remains subdued compared to Europe and would welcome additional support,” says Vít Hradil, chief economist of Cyrrus. At the same time, he expects that caution will prevail in the Bank Council, so that the interest rate will be reduced to 4.25 percent.
Capitalinked analyst Radim Dohnal predicts a further acceleration of monetary policy easing and a reduction of the interest rate to four percent. “Inflation in the Czech Republic and the Eurozone has been under control and stabilized for several months now. Wage inflation expectations sound similarly positive, based on a complex consensus between the government and trade unions for salary growth in the public sector. The structural balance of public finances has improved significantly. This is all good news, moreover supporting the easing of monetary policy. Almost every day there is bad news about the state and outlook of the industry. This is bad news, but it supports the reduction of CNB rates,” he said.
Fingood CEO Vít Endler also points out that the weak performance of the Czech economy would be matched by a faster reduction in interest rates. “A number of industries, led by the car industry, are experiencing difficulties, and they are also deepening at the pan-European level. Corporate loans are expensive, so companies postpone their investments and further growth. The construction of new apartments continues to decline, the construction market is held back by high interest rates,” he pointed out. However, he assumes that the Bank Board will be cautious in its approach and will reduce rates by a quarter of a percentage point.
ČSOB analyst Dominik Rusinko considers the same move likely. He reminded that inflation is close to the CNB’s two percent target and wage growth in the second quarter was weaker than the central bank forecast. According to him, the reduction of interest rates in the US and in the Eurozone also reduces the risk of weakening the koruna due to the drop in interest rates in the Czech Republic. In the rest of the year, Rusinko anticipates a further reduction of the basic interest rate to 3.75 percent.
FinGo mortgage specialist Jana Vaisová also anticipates a reduction in rates by a quarter of a percentage point, but the question remains, according to her, how the banks will react to this when setting mortgage prices. “None of the big banks have yet responded to the August rate cut. So we are still waiting for the first bank to set up a competitive environment. However, the banks are still keeping their margins and the question is whether they will be cheaper at all by the end of the year,” she said.
CR CNB Council rate estimates
Source: www.ceskenoviny.cz
