CNB Board Votes Unanimously to Hike Interest Rates

Prague, Feb 1 (CTK) – The Czech National Bank (CNB) Bank Board raised interest rates today, the basic rate increased by 0.25 percentage point to 0.75 percent, the central bank’s spokesman Marek Zeman said.


The governing board voted for the rate hike unanimously. Five out of the seven central bankers took part in today’s meeting. CNB vice-governor Mojmir Hampl and Bank Board member Oldrich Dedek were absent.


The CNB raised also the Lombard rate by 0.5 percentage point to 1.5 percent. The discount rate remained at 0.05 percent.


“The central bank thus reacts to the very good condition of the domestic economy which shows a decent growth pace. By raising the rates, it slows down the economy to prevent bigger imbalances or even a bubble,” said Komercni banka economist Viktor Zeisel.


The board raised interest rates the last time at the beginning of November – by 0.25 percentage point to the current level. Before that, it had raised interest rates in August for the first time since February 2008.


At its last policy meeting on December 21, the CNB governing board kept interest rates unchanged.


Before the announcement of the policy meeting’s result, the crown firmed to its strongest level since the end of the exchange rate pledge but then lost part of the gains.


“The stronger the crown is, the smaller the need for raising interest rates further from the central bank’s point of view because the monetary policy toughening will be through the stronger crown,” said ING chief economist Jakub Seidler.


“However, the current rate near Kc25.20/EUR may be already too strong from the CNB’s viewpoint,” he added.


Analysts addressed by CTK today believe that the CNB’s governing board will be raising interest rates further this year.


The basic interest rate, which now newly stands at 0.75 percent, will thus see several more hikes this year, they said.


“We expect that the CNB will continue raising the rates in the future. The next increase, by a quarter of a percentage point again, could arrive in the second or third quarter of this year,” said Moneta Money Bank chief economist Petr Gapko.


Today’s decision was in harmony with expectations, ING chief economist Jakub Seidler added.


The rate hike will raise interest rates on loans, experts have said.


Jan Jenicek, board chairman at Raiffeisen stavebni sporitelna building society, for instance, expects the average rate on five-year loans secured by real estate to rise to levels below 3 percent.


Ekospol developer CEO Evzen Korec, too, said the period of cheap mortgage loans is over.


The CNB’s move will cause an upward shift in mortgage rates, said Golem Finance brokerage firm head Libor Ostatek.


The average interest rate on mortgages increased to 2.19 percent in December last year, according to Fincentrum Hypoindex data.