CNB’s key repo rate:
Actual (July): 1.25%
The Czech National Bank cuts rates by 25 bps as we expected. However, the market was split in expectations.
CNB’s step was likely to be motivated by worse than expected performance of the economy in 2Q affecting whole-year forecasts of GDP and CPI. Inflation outlook remains benign and a fear from a possible CZK rally persuaded CNB’s board members to ease interest rates.
However, increasing number of green shoots in the euro zone as well as the Czech economy, is likely to set floor in this easing cycle. move will be up, but sometimes in 2010.