At today’s meeting, the CNB reduced interest rates by 0.5 pp, which was in line with analysts’ expectations. The main rate of the CNB thus reached 5.25% and is the lowest since April 2022 (chart 1). Although inflation is already at the central bank’s 2% target, the CNB is proceeding more cautiously in lowering rates, which it has been announcing since the start of the cycle of rate cuts at the end of last year. However, this is a predictable course in the context of recent developments in the markets and a significant reassessment of the pace of rate cuts by the Fed. Increased inflation in services also remains a source of uncertainty, which encourages a careful easing of monetary policy not only in the Czech Republic, but also in the USA and the eurozone. In recent weeks, the market has rather been in the grip of global events, and domestic interest rates with longer maturities have reached their highest level since the end of last year, which will reduce the scope for a rapid decline in mortgage rates despite today’s CNB rate cut.
Today’s decision of the central bank is traditionally reflected most quickly on the market for those products whose interest rates are most closely linked to the CNB’s short-term rate, or Cutlery. A further drop in interest rates for corporate loans can thus be expected, where the average rate for crown loans reached 7.3% in March, which was the lowest level since April 2022 (Chart 2). Thus, the interest rate difference between crown and euro loans decreased to only one percentage point in March, while in the first half of last year it hovered around 4 percentage points, and the most significant – even over 6 percentage points – was in the middle of 2022.
Interest rates on deposits will also decrease in line with the decrease in the main rate of the CNBwhich already indicates the development of deposit rates with an agreed maturity, both for households and companies – they are currently the lowest since mid-2022 and have fallen by roughly one percentage point from their highest values in the middle of last year (Chart 3).
In the end, today’s decision of the central bank may not have any noticeable effect on mortgage rates – on the one hand, this information is already contained in the longer rates, on the other hand, these mentioned rates have been significantly affected in recent weeks by global developments and, in particular, by the market’s re-evaluated expectations regarding the speed of the rate cut by the Fed. Longer interbank rates, which are key to mortgage rates, have increased by almost one percentage point in recent weeks and are thus the highest since the turn of November and December of last year (Chart 4).
This development will thus be hampered by the established trend of a faster decline in mortgage rates observed since the beginning of the year, despite today’s rate cut by the CNB. In March, the average mortgage rate decreased by two-tenths of a percent to 5.19%, i.e. the lowest level since June 2022 (Chart 5).
Source: CBA
