Analysts expect a further decline in CNB rates. But it won’t be a big jump

On Thursday, the Banking Council of the Czech National Bank (ČNB) will once again reduce the base interest rate from the current 5.75 percent. The interviewed analysts agree on this, but the question, according to them, will be the extent of this step. Most of them expect rates to drop by half a percentage point, but they do not rule out even half the range.

In recent weeks, members of the banking board have pointed out that despite inflation at the CNB’s two percent target, a cautious approach needs to be maintained. Council member Tomáš Holub, who in March unsuccessfully proposed a reduction of 0.75 percentage points, also spoke out against a more significant drop in rates.

The Banking Council started cutting rates last December. First, they fell by 0.25 percentage points, then in February and March by 0.5 percentage points. “Even the March inflation result, which remained at the CNB’s target, will not induce the majority of the Bank Board to accelerate the pace of rate cuts. The Banking Council is thus likely to lean towards a more cautious approach again at its May meeting and, similarly to the last two meetings, will reduce interest rates by 0.5 percentage points,” Raiffeisenbank analyst Martin Kron said.

ČSOB analyst Dominik Rusinko also expects a rate cut to 5.25 percent. “Another drop in rates is fueled by a brisk drop in inflation, which since the beginning of the year has significantly fallen short of the CNB’s expectations. The outlook for the coming months, when inflation should hover around two percent, is also positive,” ČTK reported. He pointed out that real interest rates are now the highest they have been in two decades.

“I expect a further drop in interest rates by a quarter to half a percentage point,” Fingood CEO Vít Endler said at the CNB meeting. “Inflation appears to be under control and two percent inflation would suit significantly lower rates. However, the Banking Council must be careful in lowering it in order to protect the exchange rate of the koruna at appropriate levels. Therefore, the pace of rate reductions will not be abrupt, but the trend of gradual decline is clear,” he added.

Cyrrus Chief Economist Vít Hradil reminded that the CNB will also publish a new economic forecast. He expects in her increase in gross domestic product growth estimate, a reduction in the inflation estimate and a weaker outlook for the koruna exchange rate. “The banker’s forecast will probably continue to encourage a faster reduction in Czech interest rates, but this will not happen again. Instead, the Bank Board will prefer to remain cautious, repeat its previous step and reduce the base rate by 0.5 percentage points to 5.25 percent,” he communicated.

Purple Trading analyst Petr Lajsek also expects a drop in the base rate to 5.25 percent. According to him, the CNB’s interest rate cut will also be reflected in interest rates on deposits and mortgages. “At the beginning of May, we can expect the yield of savings accounts to fall by 0.25 to 0.5 percentage points,” he said. “Corporate loans and mortgages should become cheaper, but the trend will be slower and less pronounced than for savings accounts,” he added. Due to the expected development of basic interest rates, according to him, mortgages will become cheaper in the coming years as well.

Investment breakfast: How to value money in a time of falling rates. And what to watch out for with bonds

Money

The investment breakfast with the subtitle “Bonds and credit: How to invest when rates are falling”, organized by the EMUN group, will advise investors on how to best navigate the current investment environment, what to focus on and how not to make a mistake. The meeting of investment experts will take place on Wednesday, April 24, 2024, from 9 a.m. You can also watch the live broadcast of the event on the website newstream.cz or www.investicnivyhledy.cz.

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FinGO mortgage specialist Jana Vaisová predicts that the base interest rate will drop by a quarter of a percentage point. According to her, this will not affect interest rates on mortgages yet. “Thanks to the increase in the price of resources, banks will rather keep their rates at the current level, especially for fixations of three to five years. They will likely reduce the rate for shorter one- to two-year leases” he means.

According to Tomáš Jícha, deputy chairman of the board of directors of the ATRIS investment company, the bank board could reduce the interest rate by up to 0.75 percentage points. However, according to him, the next decline should not occur until autumn, so that the CNB can analyze the effects of the easing of monetary policy.