Czech central bank keeps rates on hold as inflation steadies

The central bank launched one of Europe's sharpest rate-hiking cycles last year - lifting the key rate by 675 basis points between June 2021 and June 2022 - but it has been on hold since new Governor Ales Michl took the bank's helm in July and three new members joined the seven-seat board. Michl has advocated steady policy, despite a new central bank outlook in November implying more tightening was needed, and says the economy needs an anchor as it slips into a mild recession.

The Czech National Bank (CNB) left its benchmark two-week repo rate unchanged at a more than two-decade high of 7.00% on Wednesday, keeping rates steady as policymakers see signs of a peak in double-digit inflation.

Price growth hit its highest rate in around three decades in the second half of 2022 but has since eased somewhat as government measures to help households and firms deal with soaring electricity bills take effect. The central bank launched one of Europe's sharpest rate-hiking cycles last year - lifting the key rate by 675 basis points between June 2021 and June 2022 - but it has been on hold since new Governor Ales Michl took the bank's helm in July and three new members joined the seven-seat board.

Michl has advocated steady policy, despite a new central bank outlook in November implying more tightening was needed, and says the economy needs an anchor as it slips into a mild recession. He was due to comment on the bank's latest decision at a news conference at 3:45 p.m. CET (1445 GMT).

Other rate setters have also said policy was restrictive enough and see inflation coming down next year. Analysts forecast steady policy rates in the first half of 2023 before the bank will debate the first rate cuts. Czech inflation was at 16.2% year-on-year in November, down from a high of 18% in September. The central bank said November inflation would be 3.6 percentage points higher without the government's energy schemes.

Consumer confidence has also dropped sharply amid war in Ukraine and sky-high energy and food prices, while wage growth has been tamer in the Czech Republic than other central European countries, where central banks have also tightened policy. The Czech central bank has supplemented its own policy with market interventions since May to prevent the crown from weakening, which it said on Wednesday it would continue. But it has been less active in recent months as the crown has gradually firmed to 10-month highs.