Czech central bank likely to pause rate-cutting process soon, governor says
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OSTRAVA, Czech Republic, Dec 4 (Reuters) -The Czech National Bank is likely to soon pause its cycle of interest rate cuts as it assesses new forecasts with the aim of lowering core inflation to slightly below 2%, Governor Ales Michl said on Wednesday.
The central bank has cut rates at consecutive meetings since December 2023, taking its key rate to 4.00% from a more than two-decade high of 7.00%. CZCBIR=ECI
In contrast, the central banks of Hungary and Romania have held their main rates steady -at the European Union's joint highest levels -for the past two meetings, while Poland's central bank looks set to hold off on rate cuts at least until next March.
Michl, speaking to university students in the eastern city of Ostrava, said the bank did not have core inflation safely below 2% in its outlook.
"Therefore, it is very likely that we will soon pause the rate-cutting process," he said. "That we will opt for interest rate stability for some time, and we will evaluate an updated or new outlook with the aim of getting core inflation slightly below 2% in the future and overall inflation on target."
One of Michl's deputies, Eva Zamrazilova, already voted for steady rates at the bank's Nov. 7 meeting, when a 5-2 majority backed another 25-bps reduction.
Michl reiterated that rates will be higher in the future than what was usual in the 10 years before the COVID pandemic.
The Czech economy has been modestly recovering this year with consumer appetite slowly returning as inflation has cooled after the surge of the previous two years.
But the recovery has not been as strong as expected and the manufacturing sector remains stuck in decline amid weak trading conditions in Europe, particularly Germany, which is a major export market.
At the same time, inflation pressures remain, especially in the services sector where prices are still rising quickly and wage growth is picking up.
Czech inflation in October edged up to 2.8% year-on-year, at the upper end of the bank's 1 percentage point tolerance band around its 2% target. Core inflation stood at 2.4% in October.
Data on Wednesday showed the average real monthly wage rose by 4.6% year-on-year in the third quarter, a percentage point above central bank expectations. Nominal wages rose 7.0%, also more than expected.
CNB mulls pause in rate easing after 300 bps of cuts in the past year https://tmsnrt.rs/49maWQQ
Reporting by Jason Hovet; editing by Jason Neely and Christina Fincher
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