The CNB cut rates in line with our expectations by 50 bps; the rates thus are on their historical lowest levels. The Bank Board of the CNB followed the ECB and other central banks of CEE countries and lowered official rates by 50 bps on its regular meeting. The two-week repo rate was slashed from 5.25% to 4.75%, the discount rate was cut to 3.75% and the Lombard rate to 5.75%.
The CNB cited concern over a negative impact of global economic slowdown on the domestic economy. The decision to cut rates was probably also influenced by the effort to curb the koruna’s strengthening. Declining inflation, which dropped from the summer high at 5.9% to 4.3% in November, enabled the cuts. This is a significant turn in monetary policy because the bank hiked the rates in July by 25 bps. At present, the CNB should not be concerned that inflation would not meet the bank’s target for the current and the next year.
(Marek Fer - ČSOB)