The Czech National Bank has raised the key interest rate again. It ‘s at seven percent iROZHLAS

By | June 23, 2022

On Wednesday, the Bank Board of the Czech National Bank raised the key interest rate by 1.25 percentage points to seven percent. Central Bank spokeswoman Markéta Fišerová informed about it. The reason is the development of inflation and rising inflation expectations. The base interest rate was so high last time in 1999. It was the seventh above-standard increase in the base rate by more than 0.25 percentage points in a row.



Prague
(Updated: 17:55 22. 6. 2022)

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The Czech National Bank has raised the key interest rate again. It 's at seven percent iROZHLAS On Wednesday, the Bank Board of the Czech National Bank raised the key interest rate by 1.25 percentage points to seven percent. Central Bank spokeswoman Markéta Fišerová informed about it. The reason is the development of inflation and rising inflation expectations. The base interest rate was so high last time in 1999. It was the seventh above-standard increase in the base rate by more than 0.25 percentage points in a row. - Optigames

On Wednesday, the base rate rose for the seventh above-standard increase of more than 0.25 percentage points in a row (illustrative photo) | Photo: Michaela Danelová | Source: iROZHLAS.cz

The Czech National Bank also raised the Lombard rate by 1.25 percentage points to eight percent on Wednesday. The Lombard rate is the percentage rate at which commercial banks can borrow money from a central bank against a pledge of securities.

The discount rate, to which, for example, penalties for non-performing loans are linked, also increased by 1.25 percentage points to six percent.


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All seven members of the board attended Wednesday’s meeting, which was the last monetary policy meeting for the current governor Jiří Rusnok, CNB vice-governor Tomáš Nidetzký and board member Vojtěch Bend.

Their term expires at the end of June. The new governor, Aleš Michl, will become the new governor, who has already announced that he will propose rate stability at the next monetary meeting in August.

Deloitte chief economist David Marek pointed out that monetary policy is tightening central banks in a number of countries.

“The Czech National Bank was one of the first banks to assess the risk of high inflation and start raising interest rates quickly. Unlike most other countries, the Czech Republic was also joined by a strong external cost shock in the Czech Republic due to strong demand-side inflationary pressures caused by strong fiscal stimulus and savings created during the pandemic. The third key factor, which is now reflected in the growing intensity of inflation, is rising inflation expectations, “he said.

The increase may continue

According to Generali Investments CEE, chief economist Radomír Jáč, the development of inflation expectations in the Czech economy will be important for the central bank to make decisions in the coming months as well.


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“At the moment, it is difficult to predict whether a majority vote in favor of raising interest rates will be found in the Bank Board in August, but in any case it can be assumed that a new forecast from the central bank’s workshop will recommend raising rates,” he said.

Restoring stability is a priority

“The resumption of early stability of price stability is now an absolute priority of the CNB, and it is an absolutely necessary condition for the long-term prosperity of the Czech economy,” Governor Jiří Rusnok said at a press conference after the meeting of the Bank Board.

He added that the CNB was not changing its strategy of currently implemented foreign exchange interventions. “The CNB’s intervention in the foreign exchange market is preventing the koruna from weakening further. The CNB also has sufficiently large foreign exchange reserves in an international comparison, “he said.

The CNB Board considers higher price growth at home and abroad, a sharp rise in energy prices in connection with concerns about the suspension of supplies from Russia, a weaker koruna exchange rate, the threat of anchoring inflation expectations and budgetary policy developments to be risks in favor of rising prices. According to the governor, the uncertainties are the further development of the war in Ukraine and the future setting of interest rates abroad.

At the previous monetary meeting in early May, the board raised the key interest rate by 0.75 percentage point to 5.75 percent. At the end of March, it was 0.5 percentage point to five percent.


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At its meeting in early February, the council raised the rate by 0.75 percentage point to 4.5 percent. At the pre-Christmas meeting, the rate rose by one percentage point to 3.75 percent.

At the beginning of last November, the rate rose by 1.25 percentage points to 2.75 percent, the most significant rate increase since 1997. Earlier in September, the council voted to raise the base rate by 0.75 percentage points to 1.5 percent.

Five board members voted in favor of all decisions at the time. Two members, Aleš Michl and Ondřej Dědek, voted for the rates without change.

The interest rates on bank deposits and loans depend on the central bank’s rates. Higher interest rates bring more expensive loans for investment and operation, and more expensive housing loans for households.

CTK

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