Analysts see the next move as a rate cut in the second half of the year. Markets have priced in chances of a rate cut already in June or no later than September, and going into Wednesday's meeting expected around 120 basis points in cuts this year. But central bankers have shown no willingness to rush into easing policy with inflation still around three-decade highs above 16% and uncertainty surrounding wage developments in the European Union's tightest labour market. "The bank board still stands ready to raise rates, especially if the risk of a wage-price spiral increases," Governor Ales Michl told a news conference.
"From this point of view, market expectations that rates have peaked may not materialise. We consider the market expectations regarding the timing of the first decrease in CNB rates to be premature."
Like its counterparts in central Europe, the Czech central bank has kept rates stable since the middle of last year - following a year-long hiking cycle totaling 675 basis points - as it navigates an economy that tipped into a technical recession last year because of fast-sinking consumer demand. It has said repeatedly it would keep rates high for longer, while rejecting past calls to hike further to cut inflation faster. The crown , trading at more than 14-year highs this year, was 0.25% stronger in afternoon trade, at 23.57 to the euro.
HAWKISH TONES
On Tuesday, Hungary's central bank left its key rate at 13%, the highest in the European Union, and said it would need to stay there over a prolonged period as inflation has risen to over 25%. Czech headline inflation was at 16.7% in February. It hit a peak of 18% in September last year amid high energy prices. The central bank sees it in single digits in the third quarter and near a 2% target in the first quarter of 2024. Demand and foreign cost pressures remained but were easing, the bank said, while slowdowns in property and mortgage markets would help reduce core inflation.
But unemployment is below 4%, and the bank said wages in construction and industry showed significant growth in January, and it plans to scrutinise fresh data at the next meeting in May.
Some central bankers have signalled no hurry for a rate reduction.
Board member Tomas Holub, who has been a minority voice calling for a further rate hike, told Reuters cuts could happen once there was some certainty that inflation was headed to target. <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ Czech inflation Czech rate cut expectations ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^> (Reporting by Jan Lopatka and Robert Muller; writing by Jason Hovet; editing by Bernadette Baum)
robert.muller.thomsonreuters.com@reuters.net))