New rate cuts not expected from CNB

When it lowered interest rates by 75 bps in May, the Czech National Bank claimed that no further rate changes were planned in the near future. Its resolve will be tested tomorrow at a regularly scheduled meeting of its leadership. Not only is inflation slightly higher than expected (3.1 percent), but the so-called 'core inflation' rate, which doesn't include the price of fuel and groceries, reached 3.2 percent. That's one whole percentage point higher than the bank expected and makes the risk of deflation appear even less serious. But the bank believes that the current inflation figures won't last and that falling manufacturing prices in the second quarter give a more accurate picture of the Czech economy. It's not a pretty picture, either, with second quarter GDP statistics showing a more than 10 percent drop.