Czech central bank surprises with hefty 75 bps rate cut

The Czech National Bank (CNB) cut its main interest rate by a bigger-than-expected 75 basis points on Thursday, the third in a series of big reductions aimed at softening the economic blow of the coronavirus outbreak.

The move brings the two-week repo rate to 0.25%, down a total of 200 basis points since the middle of March. Markets had largely expected a 50 basis point cut. The central bank also said it had adopted additional measures that Governor Jiri Rusnok would announce at a news conference at 4:15 p.m. (1415 GMT).

The crown weakened by up to 0.3% on the day after the decision after trading stronger earlier in the day. Dealers said rates markets, which have priced in deeper cuts going forward, showed little initial reaction although the market was waiting for the central bank to comment on the decision.

Some central bankers have said the bank could take rates to their 'technical zero', a level of 0.05% that the bank maintained from 2012-2017 as part of an ultraloose policy. Analysts had expected a more modest cut at this meeting, with the bank keeping some firepower in reserve until the economic impact of the pandemic becomes clearer.

The bank is due to release new staff forecasts on Thursday. The European Commission forecast the Czech economy to shrink 6.2% this year before a rebound of 5.0% next year.