During its latest meeting on Thursday, February 8, the Czech Central Bank (CNB) decided to cut interest rates by half a percentage point. Theobjective that guided the decision is related to inflation trends, something the Czech executive is particularly sensitive to.
According to the board’s resolution, the base rate was reduced to 6.25%. At the same time, it decided to decrease the discount rate in the same range to 5.25% and the rate on deposits to 7.25%. The decision, although not completely planned, was clearly agreed: six members of the bank’s board voted in favor, while one member proposed a more rigid rate cut of 0.75%. The
announcement of the reduction immediately generated the expected effects in the short term, significantly affecting both the real estate and currency markets, attracting the attention of traders in both sectors.
Mortgages cheaper in the short term, new rates on deposits
Significant repercussions of the government’s move on the banking and real estate sectors affect interest rates on savings accounts, term deposits and mortgages.
Some of the major banks, including Komerční banka, Raiffeisenbank and Česká spořitelna, moved immediately in response, already presenting their updated offers. ČSOB, on the other hand, has adopted a different strategy, announcing that it will keep savings account rates unchanged until April 5, while reserving the option to make quicker adjustments for term deposits, especially those with long maturities.
In the mortgage arena, the reduction in interest rates is expected to mainly benefit offers with shorter fixation periods, making them cheaper. Industry experts, such as Vojtěch Ostatek of Broker Trust and Martin Machala of Ownest, predict an increase in mortgage interest and more favorable rate offers, reflecting a trend already observed following previous rate reductions.
Although the consequences for the market and savers in this area seem to be positive overall, InvestBay founder Daniel Rajnoch warns that, as a result of more affordable mortgages, an increase in demand for homes could lead to a further rise in real estate prices in the medium term.
In summary, the CNB’s decision to lower interest rates has the potential to stimulate the housing market and influence banks’ lending policies, but with complex implications to be carefully considered over longer periods of time.
Czech Crown at its lowest since 2022
If the implemented maneuver had controversial effects on the banking and real estate markets, in the currency market the consequences were clearer. As this case also shows, policy announcements can trigger significant fluctuations in the currency market.
The currency’s exchange rate has shown a sharp downward trend, touching similar levels in May 2022, when uncertainty was linked to the inauguration of the new CNB governor, Ales Michl.
Although analysts had predicted the rate cut, the magnitude of the change surprised the market, causing a current shock. The explanation for this phenomenon lies in the complex interplay of actions and events affecting the money market, both internally and externally. Government measures, together with recent negative news about the domestic economy, helped generate this kind of effect.
However, there is scope for future optimism: if interest rate cuts extend to the Eurozone and the United States, signs of a slight recovery for the crown may emerge. At the moment, analysts predict a possible strengthening of the currency in the second half of the year, driven by domestic economic recovery, foreign demand and improved sentiment toward emerging market currencies.
| Previous closure | Closing on Thursday at 5:00 p.m. | |
| CZK/EUR | 24.97 | 25,21 |
| CZK/USD | 23,21 | 23.44 |
Possible future prospects
The changes introduced in recent months by the CNB reflect, as mentioned, the government’s strategy in managing inflation and stabilizing the economy through monetary policies. These measures aim to keep inflation under control, thereby contributing to long-term economic stability.
According to the CNB’s projections, the impact of the maneuvers will result in a marked improvement in the inflationary trend, with a reduction from 6.9% to 3% in January. This testifies the effectiveness of the policies adopted by the national authorities.
The goal remains to reach the maximum of the 2% tolerance band for the inflation index. However, with the current changes, experts estimate that it could reach 2.6% in the current year. There is therefore a continued commitment to pursue similar actions in the future.
Sources: https://www.camic.cz/it/ ,https://www.cnb.cz/ ,https://www.ceskenoviny.cz/
Graphic source: https://storyset.com/
Image generated by AI
