2025.05.0720:45:00UTC+00Czech Central Bank Cuts Key Interest Rate By 25 Bps As Expected

The Czech National Bank lowered its key interest rate on Wednesday in line with expectations and projected more reductions in the second quarter as inflation is expected to remain within the tolerance band throughout the year.

The bank board, led by Governor Ales Michl, lowered the two-week repo rate by 0.25 percentage point to 3.5 percent and also cut the other key interest rates by the same amount, the CNB said in a statement.

Six policymakers voted in favor of the reduction, while one member voted for leaving rates unchanged.

The previous change in the repo rate was a quarter-point reduction in February.

"The Bank Board confirms its determination to continue its monetary policy in order to maintain inflation near the 2 percent target in the long term," the CNB said. "At present, this still requires relatively tight monetary policy."

The bank also stressed on the need to ensure that the growth in the quantity of money in the economy does not to accelerate excessively and credit growth remains moderate.

Latest official estimates showed that the Czech economic growth slowed to 0.5 percent in the first quarter this year from 0.7 percent in the final three months of 2024.

The central bank retained the GDP growth forecast for this year at 2.0 percent, which is projected to be driven mainly by household consumption. Net exports are expected to have a negative impact on the economy. The growth projection for next year was trimmed to 2.1 percent from 2.4 percent.

Headline inflation is forecast to average 2.5 percent this year and decrease to 2.2 percent next year. The assessment of the elevated inflation pressures from the domestic economy remains unchanged due to an upswing in year-on-year services inflation, the CNB said.