(Bloomberg) -- Czech policymakers are likely to continue with monetary easing and lower the key interest rate by a cumulative 1.5 percentage points to 3% by the end of next year, according to Morgan Stanley.
The central bank is likely to deliver a quarter-point rate cut to 4.25% at the next meeting on Sept. 25, and follow with moves of the same magnitude in the remaining two policy sessions of 2024, Morgan Stanley analyst Georgi Deyanov said in a report on Thursday.
He added that Czech central bankers would likely maintain their cautious approach and reiterate that they could pause or end the easing cycle should upside inflation risks materialize and keep price growth near the top of the 1%-3% tolerance band for longer.
“Yet, we also expect the Czech National Bank to acknowledge that expectations for the European Central Bank policy rate have shifted to the downside since its August meeting while risks to economic growth have deteriorated,” Deyanov wrote.
The central bank will probably cut rates three times by 25 basis points next year, most likely in February, May and August when the board will also review staff forecasts, according to Deyanov.
Further economic underperformance and weaker-than-expected wage growth could be seen by the board as signals for steeper monetary easing, he said. On the other hand, Deyanov added, a more pronounced increase in commodity prices could keep inflation closer to the upper end of the tolerance range for longer and prompt policymakers to pause rate cuts earlier than in March.
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