Czech Central Bank Reduces Key Interest Rate Again Due to Low Inflation and Economic Recovery

The Czech Republic’s central bank has reduced its key interest rate for the fifth consecutive time as inflation remains low and the economy shows signs of recovery. The interest rate was cut by a half-percentage point to 4.75%, as predicted by analysts.

Since December 21, when the bank made its first quarter-point cut, further reductions of half a percentage point each have followed on February 8, March 20, and May 2. Inflation in the country decreased to 10.7% in 2023 from 15.1% in 2022 and reached the bank’s target of 2.0% year-on-year in February, remaining stable in March. It rose to 2.9% in April but fell to 2.6% in May.

The Czech economy grew by 0.2% year-on-year in the first quarter of 2024 and increased by 0.3% compared to the previous quarter, according to figures released by the Statistics Office on May 31. In contrast, the economy contracted by 0.2% in the last quarter of 2023 compared to the same period the previous year.

Central banks worldwide are considering lowering borrowing costs as they assess whether inflation has been effectively controlled. The European Central Bank lowered its key interest rate on June 6 by a quarter-point to 3.75% from a record high of 4%, preceding the U.S. Federal Reserve in rate reductions. Despite seeing progress on inflation, Federal Reserve officials anticipate cutting their benchmark interest rate only once this year.