William Malcolm

CNB Holds Rates Steady, Upgrades Economic Outlook

The Czech National Bank kept its benchmark interest rates unchanged at 0.25 percent. AThe central bank also improved its economic development forecast this year in the new estimates while worsening the forecast for next year. This year, it expects the economy to decline by 7.2 percent and next year to grow by 1.7 percent.

In 2022, according to the CNB, the economy should grow by 4.2 percent. “Nevertheless, the performance of the Czech economy will not reach the pre-crisis level even at the end of 2022,” CNB Governor Jiří Rusnok warned today.

The new forecast first assumes the stability of interest rates, followed by their gradual rise next year. According to Rusnok, however, it cannot be ruled out that rates will not increase throughout the following year. Most bank councils believe that raising interest rates will take more time than the new forecast assumes.

These include a further possible worsening of the second wave of the pandemic, budgetary policy developments next year, domestic policy developments in the US, the UK’s exit from the EU without agreement or uncertainty about the composition of supply and demand factors behind future and expected domestic and future foreign price development.

The forecast itself assumes a significant fading of the second wave of the pandemic. By mid-next year the situation should return to the level experienced by the economy this summer.

According to the CNB, inflation should be 2.2 percent in the fourth quarter of next year, the same as in the previous forecast. In the first quarter of 2022, inflation should fall to 2.1 percent, while in prior estimates, the CNB expected inflation of 2.2 percent.