Market News
Czechs Hold Rates After Eight Cuts on Persistent Inflation Risks - BLOOMBERG
(Bloomberg) -- The Czech Republic brought its year-long monetary-easing cycle to a halt as concern over persistent inflation prevailed over a weak economic outlook.
Policymakers in Prague left the key interest rate unchanged at 4% on Thursday, following eight consecutive reductions that brought borrowing costs down by 3 percentage points. The outcome was forecast by all but one analyst in a Bloomberg survey after central bankers lined up to telegraph caution.
Consumer-price growth has slowed toward the bank’s target this year and export-reliant industries are suffering from weak German demand. But wages climbed more than expected in the third quarter, and officials including Governor Ales Michl have repeatedly pointed to a stubborn rise in the cost of services as a threat to inflation.
“It seems there is a prevailing conviction among the bank board members about the need to tame not only actual inflation, which is again showing a rising tendency, but also inflation expectations,” Raiffeisenbank AS analyst Vit Mikusek said before the meeting.
The decision underscores a divergence between central and eastern European policymakers adopting a more cautious path and other major economies bent on easing. European Central Bank officials signaled last week that borrowing costs will continue to decline after making the fourth rate cut of the year. The US Federal Reserve delivered a widely-anticipated rate cut on Wednesday — though it trimmed the outlook for more moves next year.
Czech Governor Michl will speak to reporters at 3:45 p.m. in Prague. The main focus will be on potential signals on whether rate cuts may resume at the next meeting in February.
Money-market prices indicate that investors have mostly scaled back bets on further cuts and anticipate around 50 basis points of easing next year.
Komercni Banka AS analysts presented a more dovish forecast before the December meeting, forecasting quarter-point reductions at each of the first four meetings next year that should bring the benchmark rate to 3% in June.
“In our view, inflation will slow to near 2.5% in January, and reach 1.8% on average next year,” Komercni Banka analyst Jaromir Gec said in a note. “Furthermore, economic recovery should be milder than what the central bank expects.”
