Czech National Bank Raises Interest Rates

November 2, 2017

The Czech National Bank’s first interest rate change was enacted in early August when the 2-week repo rate and Lombard rate were increased 20 basis points and 25 bps  to 0.25% and 0.50%, respectively. A second round of rate hikes was enacted today. The 2-week repo rate is being doubled to 0.5%, and the Lombard rate was doubled to 1.0%. A released statement, moreover, signals that officials expect the future path of interest rate normalization to be slightly above the path envisioned previously. Forecasts for growth and inflation have been revised slightly up. Inflation is now above its 2% target, and not projected to drop fully to that level for a year or slightly longer. Wage inflation has accelerated amid a tighter labor market, and real GDP is seen expanding around 4.5% this year but less in the next two years. Officials don’t want to see the jobless rate keep falling and are counting on koruna appreciation to limit how quickly they need to lift interest rates. “The timing of further steps in raising interest rates will be conditional on the evolution of all key macroeconomic variables, including the exchange rate of the koruna.”

Copyright 2017, Larry Greenberg. All rights reserved. No secondary distribution without express permission.



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