Seventh Consecutive Rate Cut to Tackle Inflation
The Czech central bank has lowered its key interest rate for the seventh consecutive time, responding to a steady decline in inflation. This latest cut, anticipated by analysts, reduced the rate by a quarter-point to 4.25%, continuing the bank’s efforts to make borrowing more affordable.
Aligning with Global Trends
The rate cut follows similar moves by other major central banks. The U.S. Federal Reserve recently slashed its interest rate by half a percentage point, its first cut in over four years. The European Central Bank also trimmed its deposit rate by a quarter-point earlier this month, signaling a global shift toward easing monetary policy.
Rate Cuts Started in Late 2023
The Czech central bank began reducing interest rates in December 2023, marking the first cut since June 2022. These cuts are part of a broader effort to support economic growth by reducing the cost of borrowing, particularly as inflation continues to slow.
Slower Wage Growth Adds Pressure
Pressure on Czech policymakers to reduce borrowing costs intensified as wage growth fell below expectations. Real monthly wages increased by 3.9% year-on-year in the second quarter of 2024, down from a 5% rise in the previous quarter, missing market forecasts.
Modest Economic Growth
Despite slower wage growth, the Czech economy showed signs of improvement. It grew by 0.6% in the second quarter of 2024, up from 0.3% in the previous quarter. The central bank forecasts a 1.2% growth rate for the entire year, reflecting a cautiously optimistic outlook for the economy.
Inflation Nears Target
Inflation in the Czech Republic stood at 2.2% in August, maintaining the same rate as the previous month. This figure is close to the central bank’s target of 2.0%, suggesting that the bank’s monetary policy is effectively stabilizing prices.
Influences from International Central Banks
The Czech central bank’s decision to lower rates aligns with global trends, particularly following rate cuts by the Federal Reserve and the European Central Bank. Other European countries, like Hungary and Sweden, have also reduced rates, with further cuts expected in the near future.
Future Rate Cuts Expected
With inflation under control and economic growth remaining modest, analysts predict that the Czech central bank will continue to ease rates. The central bank is likely to make additional cuts in the coming months, aiming to sustain economic momentum while keeping inflation in check.
SOURCE: Ref Image from Reuters
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