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2023/12/12 / Erste Group Research

Czechia Special Report | What is the Czech central bank waiting for?

Based on the available economic data, we are convinced that the Czech central bank should consider implementing monetary easing. The Czech economy is currently in recession, and both headline and core inflation have been falling dynamically. In fact, in October, Czechia had the second-lowest HICP (excluding food and energy) in the region. Furthermore, in the first quarter of 2024, Czechia is projected to have the lowest inflation rate but one of the highest key interest rates in the region. The country has also experienced the lowest wage pressure in the region, with negative real wage growth over the past two years. Additionally, the unemployment rate has increased over the past 12 months, which is in contrast to other CEE countries. Lastly, the expected 2% GDP fiscal consolidation over the next two years should have a cooling effect on the economy. In response to the currently unfavorable economic developments, the first rate cut of 25 basis points should be announced in December. We anticipate further rate cuts that could lower the key interest rate toward 4% by the end of the year (compared to its current level of 7%).

However, there are some concerns among central bankers about inflation development, which may delay monetary easing until the first quarter of 2024. Governor Michl, on December 6th, stated that the central bank will remain vigilant to protect against inflation. In case of monetary easing in December, the central bank would remian cautious. Already in October, he did mention that the door is open for every option in the next two meetings. In Novmeber, the key policy rate remained unchanged though. Other central bankers, such as Zamrazilova, Kubelkova, and Frait, have also expressed concerns about the path of inflation and the risks associated with early monetary easing.

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General information

AuthorErste Group Research
Product nameCEE Economies Special Report
Topic in focusFX, Macro/ Fixed income
Economy in focusCEE, Czech Republic
Currency in focusCzech Koruna
Sector in focus-


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