PRAGUE, Feb 2 (Reuters) - The Czech National Bank (CNB) left interest rates unchanged at a more than two-decade high on Thursday, as the economy tipped into a mild recession amid persistent double-digit inflation.
All analysts in a Reuters poll had expected the bank to hold the key two-week repo rate (CZCBIR=ECI) at 7.00%, where it has sat since June last year following a year-long hiking cycle totalling 675 basis points.
Under new Governor Ales Michl, the central bank has prioritised rate stability rather than further hikes.
Markets will focus on the updated macroeconomic outlook to be published at the governor's news conference at 3:45 p.m. (1445 GMT).
Inflation has been stuck in double-digits with the headline rate 15.8% in December. It is expected to jump in January due to new energy price contracts and companies' repricing, before starting a long decline.
Central bankers say signs of demand pressures or stronger wage growth could prompt them to add another hike.
But given the bank's previous resistance, analysts widely expect rate stability in the first half of the year before the first cuts happen in the second half.
While not hiking further, board members have said rates would have to stay higher for longer than was usual in the past decade.
The Czech central bank, along with others in central and eastern Europe, had moved quicker on hiking rates than global peers such as the European Central Bank, which raised rates by 50 basis points on Thursday. The region is also likely to be the first to begin undoing sharp hiking cycles started in 2021.
The Czech economy fell into a technical recession in the second half of 2022.
The bank's November forecast saw inflation getting back near its 2% target by the second quarter of 2024.
Analysts expect the bank's new outlook will show a higher inflation path than previously expected, along with stronger economic forecasts.
This is despite inflation being below the bank's previous forecast at the end of 2022, and the crown currency 3% stronger than the bank assumed in its November outlook.
That forecast showed higher interest rates were needed to bring inflation down, which the bank ignored as it said the economy needed stability to anchor it.
The bank's disinflation outlook was not shared by companies in a December central bank survey, which saw inflation at 10.1% in one year and at 7% in three years.
Two central bank board members have voted in the minority at previous meetings for rate hikes.
