The Czech National Bank cut interest rates again by 50bp, bringing the key repo rate down to 5.25%. This time, the decision was unanimous. Inflation has reached the target and the CNB expects it to remain close to 2% throughout the forecast horizon. However, the bank board still favours a slower pace of rate cuts than the CNB staff forecast. This is mainly due to the weaker koruna and the rapid rise in service prices. We expect another 50bp rate cut at each of the next two meetings. By the end of the year, we forecast the repo rate to fall to 3.5%, which should be its terminal level. According to Governor Michl, the majority of the board sees a neutral rate around 3.5%. However, the CNB’s forecast continues to use 3% as the neutral rate, so there has been no change.

The Czech National Bank cut interest rates again by 50bp, bringing the key repo rate down to 5.25%. This time, the decision was unanimous. Inflation has reached the target and the CNB expects it to remain close to 2% throughout the forecast horizon. However, the bank board still favours a slower pace of rate cuts than the CNB staff forecast. This is mainly due to the weaker koruna and the rapid rise in service prices. We expect another 50bp rate cut at each of the next two meetings. By the end of the year, we forecast the repo rate to fall to 3.5%, which should be its terminal level. According to Governor Michl, the majority of the board sees a neutral rate around 3.5%. However, the CNB’s forecast continues to use 3% as the neutral rate, so there has been no change.

At yesterday’s meeting, the Czech National Bank cut interest rates by a further 50bp, the same as in February and March. The key repo rate fell to 5.25%. This decision was in line with our forecast and analyst consensus. Ahead of yesterday’s meeting, however, financial markets were pricing in a more modest rate cut of 25-50bp. The hawkish signal is the vote split, as all seven board members voted for a 50bp cut, while at the last meeting two members preferred a 75bp cut.

The continued monetary policy easing has been supported by a decline in inflation to the 2% target, which it is expected to remain close to over the forecast horizon. Inflation reached 2% yoy in February and March, which is also the central bank’s target. Although the core component remains above it, it was still within the CNB’s tolerance band at the beginning of the year, i.e. below 3% yoy. Both headline and core inflation in 1Q24 were well below the CNB’s February forecast. According to the central bank’s newly published forecast, inflation will average 2.3% this year, although a slight acceleration to 2.5% yoy is expected in the coming months. Next year, the CNB expects inflation to average 2.0%. Our forecast is only slightly lower, at 2.1% in 2024 and 1.8% in 2025. The acceleration in annual inflation in the coming months is likely to be driven by higher fuel and food prices combined with a lower comparison base. Thereafter, however, falling electricity and gas prices for final consumers should have a positive impact. Like us, the central bank estimates core inflation at 2.6% this year. We then expect core inflation to fall to 1.9% next year, when the effects of tight monetary policy should be fully visible. The board continues to see the risks to the CNB’s forecast as skewed towards slightly higher inflation.

The bank board is cutting interest rates more slowly than the CNB staff forecast and is likely to continue to do so. On average, the repo rate in 1Q24 was almost 1pp higher than in the CNB’s February forecast. The bank board continues to favour only gradual rate cuts. The most frequently cited reasons are the weaker koruna and the rapid rise in service prices. In 1Q24, the koruna was 1.6% weaker against the euro than in the CNB forecast. Services prices, which are usually the most persistent component of inflation, rose by more than 5% yoy in March. The koruna and service price developments are likely to remain within the CNB’s scope, as the interest rate path from here on will depend on the data, according to Governor Michl. We expect the CNB to cut rates by a further 50bp in both June and August and then by 25bp at all remaining meetings this year. As a result, we expect the repo rate to reach 3.5% by the end of the year, which should be its terminal level in this monetary policy cycle. In view of favourable inflation developments and the still weak economy, interest rates should continue to fall.

All the interest rate cuts in the current monetary policy cycle should take place this year, but the repo rate is likely to remain at a higher level. In our forecast, we have raised the terminal level of the repo rate from 3.0% to 3.5%. The bank board has long stated that it intends to keep rates higher than in the past. However, there has been no change in the CNB’s forecast for the equilibrium or policy-neutral rate, despite previous statements by the board indicating the possibility of a change. Nevertheless, the CNB’s forecast for the 3M PRIBOR for this year has been revised significantly, with the central bank now expecting it to be close to 4% at the end of the year, compared with around 3% in the previous forecast. The upward revision of foreign interest rates within the external assumptions of the forecast may have had an impact. In the CNB forecast, interest rates continue to converge towards the 3% level, which they should reach by the end of 2025. According to Governor Michl, the board sees the neutral rate as higher and close to the 3.5% that we expect. As a result, the board wants to keep rates higher than the CNB forecast, which is essentially unchanged from previous meetings. However, according to Governor Michl, the new higher interest rate path in the CNB staff forecast is closer to the board’s view. Monetary policy is therefore likely to remain tighter than necessary in 1H24.

Shareholders at today's Annual General Meeting approved a dividend of CZK1,220 per share.  

The record date is Friday, May 10. Under the standard T+2 settlement, this means that Philip Morris CR shares will last trade with the right to receive this payment on Tuesday, May 7, 2024.

This dividend represents a gross yield of +7.7%.

The payment period starts on June 17, 2024.

Shareholders at today's Annual General Meeting approved a dividend of CZK1,220 per share.  

The record date is Friday, May 10. Under the standard T+2 settlement, this means that Philip Morris CR shares will last trade with the right to receive this payment on Tuesday, May 7, 2024.

This dividend represents a gross yield of +7.7%.

The payment period starts on June 17, 2024.