Czech central bank continues rate cuts amid slow economy recovery

For a sixth straight time, the Czech Republic's central bank lowered its key interest rate on Thursday as the country's inflation slows and the economy bounces back at a slower-than-anticipated rate.

The cut, which analysts had predicted, shaved off a quarter of a percentage point from the interest rate to 4.50 per cent.

The bank kicked off its rate-cutting spree on December 21 with a quarter-point reduction, the first since June 22, 2022. It was followed up with half a percentage point reductions on February 8, March 20, May 2, and June 27.

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Preliminary data from the Statistics Office showed that the Czech economy expanded by 0.4 per cent year-on-year in the second quarter of 2024 and increased by 0.3 per cent compared to the previous quarter. On the other hand, inflation slowed down to 2.0 per cent year-on-year in June, which is within the central bank's target, down from 2.6 per cent in May.

Most of the world's major central banks are considering lowering borrowing costs as they rethink whether inflationary pressures have cooled enough. The European Central Bank left its key interest rate benchmark unchanged at 3.75 per cent on July 18 after cutting it by a quarter-point at the previous meeting on June 6.

Federal Reserve Chair Jerome Powell said last week that the central bank might have its first rate cut in four years on the back of remarkable progress in controlling inflation and a job market cooling down. The Fed, however, held its key interest rate at 5.3 per cent, a 23-year high, leaving room for a probable rate cut in September.

In other words, further cuts in the Czech central bank's rates mirror its strategy to spur economic growth amid falling inflation. This forms part of trends across the world as central banks seek to walk a tightrope between recovery and price stability.