By Jason Hovet PRAGUE (Reuters) - The Czech National Bank (CNB) paused its year-long rate-cutting campaign as expected on Thursday, leaving its main rate at 4.00% as lingering inflation pressures,
Czech Central Bank Halts Rate Cuts as Inflation Persists
By Jason Hovet
PRAGUE (Reuters) - The Czech National Bank (CNB) paused its year-long rate-cutting campaign as expected on Thursday, leaving its main rate at 4.00% as lingering inflation pressures, especially for services, keep it cautious.
The Czech central bank joins peers in central Europe in pausing easing cycles, although analysts expect the bank could resume gradual cuts early in 2025, although the scale of easing still expected is far below what the CNB has already delivered.
Thursday's Czech decision marks the first time since Hungary started cutting rates in May 2023 that all four of the region's banks have kept rates on hold in the same month.
The Czech central bank, like others, is balancing still fast growth in service sector prices and a strong labour market against a weak economic recovery stemming from poor sentiment and sagging foreign demand, especially from Germany.
Earlier this month, Governor Ales Michl flagged a likely pause to rate cuts as the bank assesses new forecasts and aims to get core inflation below 2%. Michl was due to comment on Thursday's rate decision at 3:45 p.m. (1445 GMT).
Headline inflation has edged up from early-2024 lows to 2.8% year-on-year in November, staying within the upper boundary of the 1-percentage-point tolerance band around the 2% target.
Vice-Governor Eva Zamrazilova, who had already backed a pause at the last meeting in November, told Reuters this month that a break from cutting was warranted.
But rate cuts may again come into consideration, she said, if inflation starts falling in January from an uptick to the 3% area expected in December, and if annual repricing by traders in January points to disinflation next year.
Nine of 12 analysts in a Reuters poll last week forecast a return to cuts in the first quarter, when the bank meets in February and March.
After the inflation surge of recent years pushed borrowing costs to the highest in over two decades, the Czech central bank began cutting in December 2023 and has reduced its main rate by 300 basis points in that time.
Analysts have said the bank could continue cuts next year to take the main rate to as low as 3.00%.
"According to our forecast, the recovery in the domestic economy should be more moderate than the CNB is counting on, and we also expect the crown to be stronger," Komercni Bank analyst Jaromir Gec said.
The crown was a touch stronger on Thursday after the decision, at 25.11 to the euro, and is hovering just below three-month highs.
(Reporting by Jason Hovet; Editing by Keith Weir)
