The Czech National Bank will meet on Thursday next week and present its first forecast published this year. We came to the meeting expecting an acceleration of the rate of cuts from December’s 25 bp to 50 bp, which would mean a cut from the current 6.75% to 6.25%. This means a revision of our forecasts, which previously contemplated an acceleration in March. Still, it is sure to be a close call given the council’s cautious approach, which could lead to a 25 basis point cut. The board will have a new forecast from the central bank, which will likely be a key factor in its decision-making. Here we see the need for a revision in some places, but overall everything points in a moderate direction.
We see from public statements that the moderate wing of the board will push for a faster pace of rate cuts given inflation figures indicating a rapid return to the 2% inflation target this year, and which may be open to more than 50 basis points of rate cuts. . For the rest of the council, we believe that the indication of inflation for January and subsequent years in the central bank’s new forecast is key. We currently expect 2.7% for headline inflation in January, with room for this to fall if anecdotal evidence from the January price review is confirmed. In our view, this will give the rest of the board the confidence to accelerate the pace of cuts as early as this meeting.