Czech central bank lowers interest rate to 5.25%

Czech central bank lowers interest rate to 5.25%
/ bne IntelliNews
By Albin Sybera May 3, 2024

The Czech National Bank (CNB) lowered the interest rate by 0.5 percentage points to 5.25% at its monetary board meeting on May 2.

The interest rate is now at the lowest level since May 2022 and comes after the same moves in February and March. CNB lowered interest rates in December for the first time under the watch of current governor Ales Michl, who took over in the summer of 2022.

CNB also improved its economic outlook for this year to 1.4% growth, up from the 0.4% growth it predicted in February. It also improved the forecast for 2025 from 2.4% growth to 2.7%.

Analysts surveyed by the business section of the Czech online news outlet Seznam Zpravy (SZ) voiced expectations that the trend will continue in the hope that it will lead to lower mortgage rates.

“Corporate loans and mortgages should get cheaper, but the trend will be slower and less significant than in the case of savings accounts,” Petr Lajsek, analyst from broker company Purple Trading, was quoted as saying by SZ.   

“If banks lower mortgage rates, then it will be in case of short fixations for one to two years,” a mortgage analyst at FinGo, Jana Vaisove, told Czech Press Agency.   

The move was expected by local market analysts even though central bankers were careful not to signal the lowering of interest rates very openly.  

Michl said during his speech at Pardubice University in late April that his goal is “maintaining price stability” and also criticised his predecessors for their policies of low interest rates in the previous decade.

Vice governor Eva Zamrazilova said in an interview with country’s Ekonom weekly ahead of the meeting that Czechia was the first country in the region to reach the 2% inflation level. Inflation in Czechia stagnated at 2% in March.

Michl’s predecessor at CNB’s helm, Jiri Rusnok, hit back at Michl in an interview for Czech business daily E15 this week.

“Considering the state of the Czech economy and the short-term outlook of inflation, the rates should have been lowered more and sooner,” Rusnok said, pointing to the stagnating economy. He added that Michl “did nothing” after taking over the CNB and that “we could have been at the [inflation] target sooner by a couple of months”.