CNB Hikes Interest Rates To 1.25%


Prague, Aug 2 (CTK) – The Czech National Bank (CNB) Bank Board raised interest rates today, the basic rate grew by 0.25 percentage point to 1.25 percent, the board decided unanimously on the rate hike, CNB governor Jiri Rusnok said at today’s press conference.


Six out of the seven central bankers attended the policy meeting. Oldrich Dedek was absent.


“The decision is based on the CNB’s new macroeconomic forecast. Continuing raising of interest rates towards their long-term neutral level is consistent with the forecast,” he added.


Analysts ascribe the step to domestic economic development. Wages grow significantly, the crown is weaker than was expected and inflation is above the CNB’s target.


“According to earlier statement of CNB representatives, the decision was caused mainly by the weaker rate of the crown. The CNB earlier expected the crown to be firming faster and thus be cooling down the gradually overheating economy,” said ING chief economist Jakub Seidler.


“The crown is at the moment under the influence of the global uncertainty and does not firm sufficiently fast, so the CNB saw as necessary to opt for another rate increase,” he added.


Seidler thinks that the CNB will raise the rates at least once more this year.


“The central bank decided to raise interest rates again one month earlier than we had expected. Nevertheless, from the macroeconomic point of view, the difference is negligible,” said Raiffeisenbank analyst Frantisek Taborsky.


“We still assume that the CNB will raise the rates one more this year. The 2-percent repo rate should thus be at the level of 1.50 percent at the end of the year,” he added.


The crown reacted to the decision by a slight firming at the first moments, said Komercni banka economist Viktor Zeisel.


At 13:05, the crown traded for some Kc25.60/EUR, according to Patria server.


The CNB raised also the Lombard rate, by 0.25 percentage point to 2.25 percent, and the discount rate by 0.2 percentage point to 0.25 percent.


The last time when the central bank raised its rates was at the end of June, the basic rate grew by 0.25 percentage point at that time.


Cyrrus chief economist Lukas Kovanda pointed out that the CNB had raised interest rates twice in a row the last time eleven years ago.