Czech central bank cuts a key interest rate again with inflation down and the economy on the mend

The Czech Republic’s central bank on Thursday cut its key interest rate for the fourth straight time as inflation dropped and the economy showed signs of recovery.

The cut by a half-percentage point brought the interest rate down to 5.25%. The move was expected by analysts.

The bank started to trim borrowing costs by a quarter-point on Dec. 21, which marked the first cut since June 22, 2022. It continued with a cut by a half-percentage point on Feb. 8 and went on by another half-percentage cut on March 20.

Inflation declined to 10.7% in 2023 from 15.1% in 2022, according to the Czech Statistics Office, and dropped to 2.0% year-on-year in February, which equals the bank’s target, and remained unchanged at the same level in March.

The Czech economy was up by 0.4% year-on-year in the first quarter of 2024, and increased by 0.5% compared with the last three months of the previous year, the preliminary figures released by Statistics Office indicated on Tuesday.

That came after the Czech economy contracted by 0.2% in the last three months of 2023 compared with a year earlier.

The Czech bank’s decision comes as central banks around the world, including the U.S. Federal Reserve, are trying to judge whether toxic inflation has been tamed to the point that they can start cutting rates.

The European Central Bank left its key rate benchmarks unchanged at a record high of 4% in April, but signaled it could cut interest rates at its next meeting in June.

But the U.S. Federal Reserve emphasized earlier this week that inflation has remained stubbornly high in recent months and said it doesn’t plan to cut interest rates until it has “greater confidence” that price increases are slowing sustainably to its 2% target.