Czech National Bank stands pat amid rising global uncertainty

March meeting sees seventh consecutive hold: On 19 March, the Czech National Bank (CNB) left its two-week repo rate unchanged at 3.50%—the lowest level in over four years—for a seventh straight meeting. Once again, the hold was unanimous and matched market expectations.

Contained inflation drives decision: The CNB opted out of hiking rates, as inflation fell to a 10-year low in February, extending a two-year run of near-target inflation. Moreover, a cut was off the cards due to potentially higher future fuel price pressures, a tight labor market, rapid wage growth and accelerating credit growth. Still, the CNB considered inflationary risks balanced for now, though the evolution of the Iran war is key to monitor ahead.

Bank likely to keep rates on hold until year-end: Czech policymakers are reportedly keeping all options on the table this year, as the CNB sees inflation remaining below its 2.0% target this year despite the Iran war. A large majority of panelists see the Bank leaving rates unchanged for the remainder of this year, with the rest expecting the CNB to resume its easing cycle. The evolution of the Middle East conflict and the potential second-round effects of higher energy costs are key to monitor. The Bank will reconvene on 7 May.

Panelist insight: ING’s David Havrlant commented: “The Czech economy is well positioned to face the current turmoil in the Middle East. Amid an oil price shock, and more generally, a negative external supply shock, the CNB will likely follow the appropriate path, which is to keep rates unchanged for quite some time. The pain threshold is relatively high in the current favourable economic environment.”

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