The market and analysts had anticipated a drop of half a percentage point, so the decision of the central bank’s board should not significantly impact the exchange rate of the Czech koruna. Jakub Seidler, the Chief Economist of the Czech Banking Association, shared this view. Following the central bank’s decision, the koruna’s exchange rate hovered around the 25.30 CZK/EUR mark. Matěj Novák, a member of the Board of the Czech Fintech Association, suggested a strong technical resistance within the 25.50 – 25.40 CZK/EUR range, which should maintain the currency’s stability.

According to Seidler, a decrease in interest rates can now be expected for corporate loans, deposits, and mortgages. The central bank’s decision reaffirms the established trend and market expectations, which are already reflected in the long-term market rates. These began to fall at the end of last year due to expectations of faster rate cuts by central banks. The seven-member central bank board also reduced two other rates by the same range. The discount rate was lowered to 4.75 percent, and the Lombard rate to 6.75 percent. The Lombard rate is the percentage rate at which commercial banks can borrow money from the central bank against the pledge of securities. Penalties for unpaid loans, for example, are tied to the discount rate.

In conclusion, this move marks a continued effort by the CNB to stimulate the economy by easing borrowing costs. This is expected to ripple effect on various aspects of the economy, particularly in the housing and corporate sectors, which are directly influenced by interest rates.

Created by the team of CzechTrade Shanghai
Source: Czech Daily