Interview with Jan Procházka, Bank Board Member
By Jan Lopatka and Jason Hovet (Reuters 12. 6. 2025)
According to CNB Board member Jan Procházka, no change in interest rates is expected at the June meeting. More important will be the August meeting, where a discussion may take place on whether to ease rates slightly further. In his view, the Czech economy remains below potential – manufacturing is struggling, partly due to developments in Germany, and the labour market is cooling gradually, especially in industrial sectors. Inflationary pressures persist mainly in services, where price growth is fading more slowly than the central bank would like.
Interview
The Czech central bank is very likely to leave interest rates unchanged in June but may debate one more cut at its August meeting, board member Jan Prochazka said.
The economy is not generating much demand-side price pressure, although inflation in services has been fading at a slower pace than the central bank had wished, Prochazka said in an interview with Reuters on Wednesday.
The bank has cut its main rate to 3.50% from 7.00% since the end of 2023, having slowed its easing pace as it nears what some bankers see as a possibly final level. Its rate-setting board voted 6-1 to cut rates last month.
Prochazka said that given global uncertainties, it was wise to be cautious and the market would be puzzled by any outcome other than no change on June 25.
"We are at a crossroads now," Prochazka said. "We have gone half way (from 7.0%), and it is always good to halt, look around and see if you are going the right way."
"The important vote will be the one in the summer, where two views may meet: those that believe that this easing phase is over and those who think some further light easing is bearable," he said.
He said he counted himself in the camp of those believing further easing could be possible.
"That is how I feel it, but let's be clear that there is not much room, so the final level could be 3.25%," Prochazka said.
"At the same time, with rates closer to 3%, I would feel comfortable raising them again should fresh or stronger inflationary pressures emerge."
Prochazka said his view was that the economy was still below potential and could use a little bit more support, with manufacturing in weak shape in tow of Germany's economic woes.
The labour market has been cooling slowly with a reduction in manufacturing jobs being replaced by more jobs in services, where a post-coronavirus labour shortage was only gradually easing.
The economy grew by 2.2% on an annual basis in the first quarter, but household demand - the key driver - lagged central bank expectations.
Inflation picked up to 2.4% in May from a drop to 1.8% in April, slightly outpacing the bank's forecast.
"In August, I will know the preliminary estimate of the second-quarter GDP data, I will know if the little wave in core inflation which we are going through is receding or is more robust than expected," he said.
Services price growth continues to form the bulk of the central bank's concerns, as it persists after overall inflation dropped from double digits seen in 2022-2023.
"Certainly inflation in services is fading slower than we would like. But there are cyclical as well as structural changes in services," Prochazka said.
Financial markets are not fully pricing in another rate cut this year. Governor Ales Michl said at a Bloomberg event on Tuesday that the main rate may remain at 3.5% for some time.