At its meeting today, the Banking Council of the Czech National Bank decided to reduce interest rates by 0.25 percentage points starting on August 2.
The two-week repo rate will thus fall to 4.5% from the previous 4.75%, where it was from June 28. The discount rate will drop to 3.5% and the Lombard rate to 5.5%.
Analysts had expected a cut. The only question was whether the CNB would cut rates by a quarter of a percentage point, or again by half. In the end, all seven members of the bank board were there to slow down the pace.
On the one hand, commercial banks’ interest on savings accounts and time deposits, and on the other, interest on mortgages and other loans indirectly depend on the base rates of the CNB.
Central banks raise interest rates in a situation where they want to slow down the economy. Higher interest rates mean more expensive loans and more favorable savings. This combination is intended to reduce the willingness of people and companies to spend. And when demand falls, prices should fall as well.
On the contrary, by lowering interest rates, central banks try to stimulate the economy. Lower interest rates mean cheaper loans and also less people’s desire to keep money in savings accounts, i.e. a higher willingness to spend. This is called monetary easing.
In the old composition under the leadership of Jiří Rusnok, the bank board raised interest rates nine times in a row in the fight against rapidly rising inflation. As recently as June 2021, the two-week repo rate was 0.25%, rising to 7% by June 2022. The new board under the leadership of Aleš Michl kept it there until December 21, 2023, when it started gradually reducing rates.
The new CNB forecast assumes that year-on-year inflation will reach an average of 2.2% this year and 2% next year.
“Lower interest rates will accelerate the growth of the Czech economy next year. The drop in interest rates will motivate companies to increase investment activity. In turn, it will allow consumers to increase their spending in stores,” says BHS Chief Economist Štěpán Křeček.
Better conditions for granting loans could be used by companies that are currently facing high interest costs. As a result, it should reduce companies’ fears about starting new projects, which will support investment activity, Křeček believes.
“The reduction in interest rates will gradually be transferred to consumer loans as well. This, combined with a decline in interest rates on savings accounts and time deposits, may support household consumption. There will also be pressure to further reduce interest rates on mortgage loans. This should increase the demand for mortgages, which will be reflected in the growth of real estate prices,” explains Křeček.
“Unlike the rate cut in June, the CNB decided not to surprise anyone this time and returned to the previously standard quarter-percent steps,” responds Petr Dufek, Chief Economist of Creditas Bank.
“Precisely as a result of the last surprising strike by the central bank, the koruna weakened above 25 crowns per euro and in the course of the following weeks lost more than two percent in total,” he reminds.
According to Dufek, thanks to low inflation, the CNB has room to continue the normalization of interest rates, which will now take place more slowly and will not unnecessarily push the koruna into a defensive position.
Individual commercial banks will continue to reduce interest rates on savings accounts and term deposits.
“Loans to companies with a variable interest rate and, over time, mortgages should also see a discount, but their rates do not directly reflect the repo rate of the CNB, but rather the price of five-year money on the financial markets,” explains Dufek.
“Given that part of the market was expecting a more significant drop in rates, today’s decision will probably lead to a slight strengthening of the koruna exchange rate. At the same time, the decline in long-term interest rates should moderate. They began to fall faster in July and are currently at their lowest level this year, not only due to expectations of the development of domestic rates, but also the development of the interest rate environment abroad. It is this mentioned drop in market rates that opens up more room for a drop in mortgage rates than today’s CNB rate cut itself,” says Jakub Seidler, chief economist of the Czech Banking Association.
CNB two-week repo rate
from%2. 8. 20244,5 28. 6. 20244,753. 5. 20245,2521. 3. 20245,759. 2. 20246,2522. 12. 20236,7523. 6. 202276. 5. 20225,751. 4. 202254. 2. 20224,523. 12. 20213,755. 11. 20212,751. 10. 20211,56. 8. 20210,7524. 6. 20210,511. 5. 20200,2527. 3. 2020117. 3. 20201,757. 2. 20202,253. 5. 201922. 11. 20181,7527. 9. 20181,53. 8. 20181,2528. 6. 201812. 2. 20180,753. 11. 20170,54. 8. 20170,252. 11. 20120,051. 10. 20120,2529. 6. 20120,57. 5. 20100,7517. 12. 200917. 8. 20091,2511. 5. 20091,56. 2. 20091,7518. 12. 20082,257. 11. 20082,758. 8. 20083,58. 2. 20083,7530. 11. 20073,531. 8. 20073,2527. 7. 200731. 6. 20072,7529. 9. 20062,528. 7. 20062,2531. 10. 2005229. 4. 20051,751. 4. 2005228. 1. 20052,2527. 8. 20042,525. 6. 20042,251. 8. 2003226. 6. 20032,2531. 1. 20032,51. 11. 20022,7526. 7. 2002326. 4. 20023,751. 2. 20024,2522. 1. 20024,530. 11. 20014,7527. 7. 20015,2523. 2. 2001526. 11. 19995,2527. 10. 19995,55. 10. 19995,753. 9. 1999630. 7. 19996,2525. 6. 19996,54. 5. 19996,99. 4. 19997,212. 3. 19997,529. 1. 1999818. 1. 19998,7523. 12. 19989,54. 12. 199810,513. 11. 199811,527. 10. 199812,525. 9. 199813,514. 8. 19981417. 7. 199814,520. 3. 19981517. 12. 199714,7510. 12. 1997159. 12. 199715,54. 12. 199716,753. 12. 199717,52. 12. 1997181. 12. 199718,531. 10. 199714,84. 8. 199714,51. 8. 199714,728. 7. 199714,924. 7. 199715,223. 7. 199715,422. 7. 199715,716. 7. 1997169. 7. 199716,28. 7. 199716,57. 7. 1997171. 7. 199717,930. 6. 199718,224. 6. 199718,523. 6. 19972020. 6. 19972218. 6. 19972511. 6. 1997294. 6. 19973921. 6. 199612,49. 5. 199611,829. 4. 199611,629. 3. 199611,58. 12. 199511,3Zdroj: ČNB
Petr Kučera
Share the article before I delete it
