The Czech National Bank (CNB) board member Jakub Seidler  says he sees “limited scope” for more rate cuts due to persistent services inflaton, Reuters reported on July 30.

Consumer price growth (CPI) in Czechia reached its highest level this year after the country’s statisticians confirmed inflation increased by 2.9% year-on-year in June, and by 0.3% month on month, the same as it the preliminary estimate released earlier this month.

At the same time economic activity strengthens and services inflation remains elevated, Seidler said in an interview with Reuters.

"Based on all current information, I would say the (main) rate would stay stable for some time ... Unless we see some unexpected developments, it is even possible that we are done" in the rate-cutting cycle, he told Reuters.

Seidler stated that the bank’s current policy rate of 3.50% is close to its estimated neutral level, and that any further monetary easing would require significant changes in the economic outlook.

“We are still very close to the so-called neutral rate, so I think 'on hold' right now is something that for me is quite a natural choice,” he said.

The CNB, which is scheduled to hold its next policy meeting on August 7, has cut rates by a total of 350 basis points since 2023 when inflation hit a historical high of 18%. The central bank has followed a cautious approach since, lowering rates twice while holding steady on three occasions, including its last meeting in June. (chart)

Seidler noted that headline inflation reached 2.9% y/y in June, approaching the upper limit of the CNB’s tolerance band around its 2% target. He highlighted the persistence of services inflation, which rose 5.0%, as a particular concern. “I think the disinflationary process in services is slower than I would expect or is desirable,” he said.

Factors such as higher real-estate prices feeding into imputed rents, strong household demand, wage growth, and a structural shift towards services are contributing to continued pressure on services prices, Seidler said. He added that some inflationary risks, including those related to food prices and wages, were beginning to materialise.

Seidler indicated that the CNB’s upcoming forecast would likely show a slightly higher inflation outlook for 2025, along with a possible upward revision of the 2025 GDP growth projection, currently at 2.0%. Preliminary data released on Wednesday showed the Czech economy grew by 2.4% y/y in the second quarter, matching the pace of the first quarter, though quarter-on-quarter growth slowed.

Seidler also mentioned that concerns about pre-stocking in industry due to global trade tensions may ease following recent agreements between the European Union and the United States. “The figures provide reasons for cautious optimism,” he said.