Commercial presentation Update: 10/05/2024 10:06
Issued by: 10/05/2024, 10:06
Prague – Deputy Governor of the Czech National Bank (ČNB) Jan Frait and member of the banking board Tomáš Holub considered a faster easing of monetary policy. In the end, however, at the May meeting, they joined the majority of the bank board and supported a drop in the base interest rate by half a percentage point to 5.25 percent. This follows from the minutes of the meeting, which the CNB published today. It also appears from the record that part of the bank board is concerned about the faster rate of growth of service prices.
Frait and Holub considered it possible to reduce the base interest rate by 0.75 percentage point due to the development of the economy, but in the end they favored a smaller decrease. At the March meeting of the Bank Board, both voted for a rate cut of 0.75 percentage points, but they remained in the minority and the base rate was also reduced by half a percentage point. The CNB started reducing the base rate in December, before that it was at seven percent for a year and a half.
According to the record, the Banking Council addressed the difference between the rate of growth of prices of goods and services. Overall year-on-year inflation was two percent in March, which corresponds to the CNB’s target, but compared to the previous year, prices of services rose by 5.4 percent, according to the Czech Statistical Office (CSO), while prices of goods rose by 0.1 percent.
A part of the Bank Board considers the rapid growth of service prices to be a risk for the development of overall inflation. Vice-governor Eva Zamrazilová and council member Jan Kubíček stated that the significant difference in the rate of growth of prices of goods and services could theoretically be justified by the economic convergence of the Czech Republic with Western Europe, but currently economic data do not point to such a convergence. Jan Procházka, a member of the Bank Board, pointed out that the rapid growth in service prices now balances the decline in food and energy prices, but these items are subject to large fluctuations and the balancing effect can quickly disappear there. According to Holub, the faster growth of service prices is just an echo of the inflationary wave from previous years and does not represent a reason for easing the pace of monetary policy easing.
In the end, the Banking Council unanimously supported the reduction of the base interest rate by half a percentage point. CNB Governor Aleš Michl pointed out at a press conference that the Bank Board will approach further rate cuts with caution and with due regard to the development of the economy. He emphasized that the CNB can interrupt or stop the easing of monetary policy at any time. According to analysts, it is possible that at the June meeting of the Bank Board, the rate of decline in bank rates will decrease to a quarter of a percentage point.
CR inflation CNB record
