At its meeting on Thursday, the Bank Board of the Czech National Bank will raise the key interest rate by a quarter of a percentage point to 0.75 percent, analysts polled by ČTK agree. At the same time, they expect the council to raise rates at its next meetings for the rest of the year so that the key interest rate could rise to one to 1.25 percent at the end of the year. The reason for the increase in rates is mainly concerns about rising inflation related to the economic recovery. On the other hand, the rise in rates may be slowed down in the autumn by a worse pandemic situation. On Thursday, in addition to setting rates, the council will discuss and present a new macroeconomic forecast, for which economists expect an improvement in the economic growth estimate.
At its last monetary meeting on 23 June, the Council raised interest rates for the first time since February 2020. The key interest rate, on which the interest rate on commercial loans is derived, rose by 0.25 percentage point to 0.5 percent. Four members of the Bank Board voted in favor of this decision. Bank Board member Vojtěch Benda even voted in favor of raising the key interest rate by 0.5 percentage point. Two members, Aleš Michl and Oldřich Dědek, were in favor of leaving interest rates unchanged. In the current May forecast, the CNB expects economic growth of 1.2 percent this year and 4.3 percent next year.
“The increase in rates at next week’s meeting is practically done. However, the August tightening of monetary policy will most likely not be the last this year.
The chief economist of the Czech Banking Association, Jakub Seidler, is counting on the same development. “Unless an unexpectedly unfavorable pandemic development occurs in the autumn, interest rates may go up at further CNB meetings, ie at the end of September and the beginning of November. reached 1.25 percent at the end of the year, “he said.
According to him, a rapid rate hike would be in line with Benda’s latest statement, which mentioned that the CNB’s new forecast may indicate the need to raise interest rates faster this year than expected in the CNB’s last spring forecast. Likewise, Vice Governor Tomáš Nidetzký can imagine an increase in interest rates at each subsequent monetary meeting of the CNB, according to a recent statement. After the June meeting, CNB Governor Jiří Rusnok also expressed a similar opinion.
“Consumer inflation in combination with the ending pandemic and the economic recovery of the Czech economy clearly remains a key argument for raising rates. Most central bankers alike mention the current higher inflation growth and the anchoring of inflation expectations. next year to push for rapid wage growth again, thus generating pro-inflationary pressures, “said Miroslav Novák, an analyst at Akcenta. In the new forecast, he expects the economic growth estimate to improve to three percent this year and rates to rise by a quarter of a percentage point on Thursday.
“The forthcoming meeting of the Bank Board will follow the same trend as the last one and will deliver the same result, ie an increase in the base rate by 0.25 percentage points. The CNB’s updated forecast faster rate increase, “said Raiffeisenbank analyst Vít Hradil. At the same time, he expects one or two board members to speak in favor of growth of 0.5 percentage points, while only one of the board members is in favor of unchanged rates. “Most will eventually move up 0.25 percentage points, citing the risks associated with new coronavirus mutations as well as problems in industrial supply chains. These barriers are likely to deter bankers from further tightening policies at the September meeting.” and it will not happen again until November. The basic rate could end this year at the level of one percent, “he estimated.
“We expect the CNB to raise the key rate by 0.25 percentage point, and we think it is appropriate. The act of raising itself will not come as a surprise to the markets, as most actors have already included it in their expectations. An interesting comparison is with the eurozone, where rates have not been raised yet, which, among other things, leads to a strengthening of the Czech koruna with a negative impact on Czech exports, “PwC Czech Republic partner and financial markets expert Jan Brázda told ČTK.
All seven members of the board will attend Thursday’s meeting.