Big Rate Hike by the Czech National Bank

September 30, 2021

The Czech National Bank two-week repo rate was hiked by 75 basis points to 1.50%. Instead of implementing a third 25-bp increase since June, this surprisingly large tightening reverses all but 50 basis points of last year’s net reduction of the policy interest rate. In early February of 2020, the rate had been raised from 2.0% to 2.25%, but as Covid surfaced, officials quickly reversed gears lowering such by 50 bps in mid-March, 75 bps in late March and another 75 bps in early May. Czech CPI inflation this year has doubled from a low of 2.1% in February to 4.1% by August, which exceeds the target range ceiling by a bit more than a percentage point. Supply bottlenecks are not the only source of the spike in inflation. Officials observe rising costs of owner-occupied housing and a renewed overheating of the Czech labor market, and they are determined to counter any upside de-anchoring of expected inflation.

Copyright 2021, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

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