CNB Holds Rates Steady, Downgrades Economic Outlook

The Czech National Bank left interest rates unchanged today. The primary interest rate, on which the interest rate on commercial loans is derived, thus remains at 0.25 percent. CNB Governor Jiří Rusnok also said today that he is convinced that the council will raise interest rates later this year. He did not rule out that the members of the Bank Board could raise rates after the June meeting of the Board. However, economists do not expect to start raising rates until after the August meeting of the council.

At the same time, the stability of market interest rates, followed by their rise from around the middle of this year, is consistent with the CNB’s new forecast presented today. In its forecast, the central bank today worsened its estimate of economic growth this year to 1.2 percent. For next year, on the other hand, it improved the estimate to 4.3 percent.

“I expect we will return to the debate on rates at the next meeting. And I dare not speculate on how many of these increases there will be, because the situation is still volatile. But I am convinced that there will be some increase this year, rates, I am also convinced, “Rusnok said today. He added that uncertainty about when to start raising interest rates had eased. “There is no need to postpone the beginning,” he added.

“Although Rusnok did not rule out the possibility that the first rate hike will take place in June. Personally, I believe that we will have to wait for the first rate hike until the August meeting, at which the Bank Board will have a new macroeconomic forecast. the rate increase will take place in November, “said Miroslav Novák, an analyst at Akcenta.

According to the governor, the current development of the Czech and world economy, especially with regard to the decline of the pandemic and the vaccination of the population, indicates an optimistic development, which will be associated with pressures on price growth. According to the CNB, headline inflation should thus be 2.7 percent this year and 2.4 percent next year. In the previous February forecast, the central bank estimated average inflation at two percent this year and 2.2 percent next year.

Interest on bank deposits and loans is derived from central bank rates. Businesses have higher interest rates on investment and operating loans, and more expensive housing loans on households.

In the April forecast, the Ministry of Finance left the estimate for this year’s economic growth at 3.1 percent. For next year, he estimates that the economic growth rate will accelerate to 3.7 percent, mainly due to the recovery in private consumption. The International Monetary Fund expects the Czech economy to grow by 4.2 percent this year. The European Commission expects growth of 3.2 percent.

“In the second half of the year, the performance of the economy would have to be incredibly high for the full-year growth to be around three percent. We do not expect this now. But it does not have a significant effect on our further thinking,” Rusnok said today.