At today’s meeting, the Czech National Bank, as expected, interrupted the year-long process of interest rate cuts. This was due to the bank board’s perception of a modestly inflationary balance of risks. According to Governor Michl, at the next meeting (in February), the CNB is likely to decide again between interest rate stability and further rate cut. The Governor continues to state that the board’s next steps will depend on newly released data. In our view, these should point to continued weakness in the Czech economy and a decline in inflation to close to the 2% target next year. We therefore expect further rate cuts at a pace of 25bp per meeting until June, when the repo rate should reach the 3% terminal level. However, given the hawkish bias of the board, the risk is that the easing could be more moderate than we expect.