Research Briefing | Dec 21, 2022

Policy tightening is over for the CNB, but when comes loosening?

The Czech National Bank (CNB) kept the policy rate unchanged at 7% for the fourth consecutive meeting today, in line with our and consensus forecast. Signalling from the board before the meeting has been that rates will either stay put or go up slightly, but we think that today’s outcome confirms that monetary tightening is now over.

What you will learn:

  • Inflation is currently sending mixed signals, distorted by the government-imposed price cap on electricity and gas as well as the soft base effects from VAT cancellation in Q4 last year. Overall, we assess that inflation has peaked and expect it to come down relatively swiftly in 2023, although risks to our forecasts skew to the upside.
  • The dovish voting majority on the CNB’s board is now focusing on wage growth, looking for signs of price-wage spiral. We argue this is unlikely and the CNB is potentially underestimating the depth of the nascent downturn.
  • The replacements for two outgoing board members – Marek Mora and Oldrich Dedek – have been named by president Zeman last week. Neither of his two choices are controversial, and they will have little impact on the current voting majority on the board.
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