The Czech National Bank cut rates by 75bp today but the total package of measures disappointed. After the latest MinFin comments, the CNB planning on quantitative easing appeared as a done deal. But the CNB indicated it is not on the table now. All this is positive for the koruna but less positive for Czech Government bonds.

The Czech National Bank cut its key repo rate by a further 75bp at last week’s monetary policy meeting. While this was in line with market expectations, analysts expected a smaller decrease of 50bp. A poorer growth outlook for the Czech economy due to the COVID-19 pandemic remains the main reason for the loose monetary policy. The central bank also decided to decrease the counter cyclical capital buffer to 1% starting on 1 April and is prepared to buy government bonds in order to stabilise the financial sector. Once again, the bank declared its readiness to defend the koruna – which is weakening significantly – through the FX intervention. It did not cite a trigger value, but one was set internally. We forecast another rate cut of 50bp in the event of more severe economic impacts. As the cuts are state dependent, they can be implemented any time.