William Malcolm

Czech National Bank Holds Interest Rates Steady

The Czech National Bank board voted unanimously to keep interest rates unchanged today. The main interest rate, on which the interest rate on commercial loans is derived remains at 0.25 percent. According to economists, rates should remain unchanged for an extended period.

However, according to economists, uncertainty is caused by further developments around the spread of coronavirus, which could, in extreme cases, lead to the launch of alternative monetary policy instruments, such as foreign exchange interventions.

CNB Governor Jiří Rusnok pointed out that the second wave of the pandemic poses the most significant risk in the CNB’s current August forecast. It expects the economy to decline by 8.2 percent this year and grow by 3.5 percent next year. According to the governor, the baseline scenario of the central bank’s August forecast is still relatively well fulfilled and is matched by the stability of domestic market interest rates until the middle of next year and then their gradual rise.

At the same time, however, Rusnok stated today that if the pandemic situation were close to that in the spring, then economic development would approach the alternative scenario prepared by the CNB as part of its May forecast. According to him, with the next wave’s onset at the end of this year, the Czech economy could fall by as much as 13.5 percent this year and by 1.5 percent next year.

“We still hope and have no reason to start considering the alternative scenario as the main scenario. It is evident that if the situation is close to the spring situation, we will be close to that scenario. But so far, we are still very distant, and we hope that it will not happen, “Rusnok added.

In addition to the current situation regarding the spread of coronavirus, the Council included, among other risks and uncertainties, the development of budgetary policy and the composition of supply and demand factors behind inflation. According to Rusnok, the government’s fiscal measures could have a positive effect on the economy.