Large 125-Basis Point Interest Rate Hike at the Czech National Bank

November 4, 2021

There had already been rate hikes of 25 basis points in both June and August followed by 75 basis points in September, but those increases were a mere preamble to a 125-basis point rise in the two-week repo rate to 2.75%. Like many other monetary authorities, those at the Czech National Bank attribute the recent elevation of inflation to self-limiting factors such as pent-up demand amid diminishing restrictions on social activities and supply-side bottlenecks affecting the price of energy and many other items. While some central banks are stressing patience, Czech officials have chosen a forceful preventative early response to ensure that the temporary inflationary impulse doesn’t infect other costs and get embedded in higher medium-term inflation. While the inflation target is a corridor of 1-3%, consumer price inflation is already at 4.9% and expected to crest at close to 7% early in 2022. More rate hikes may follow, and it will not be until 4Q 2022, if not mid-2023, before inflation is back around the target midpoint, according to a released statement. Officials expect the Czech economy to handle this rapid climb in its interest rate. An updated forecast projects real GDP to growth 3.5% next year and 3.8% in 2023.

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

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