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Reaches seven percent: since 1999 it has never been this high

As expected, the Czech National Bank (CNB) raised the interest rate by 1.25 percentage points to 7 percent. This was announced by spokeswoman Markéta Fišerová. The last time the base interest rate was this high was in 1999; it was also the seventh increase of more than 0.25 percentage points in a row.  The CNB also raised the so-called Lombard rate (the percentage rate at which commercial banks can borrow money from the central bank against a pledge of securities) by 1.25 percentage points to 8 percent. It also increased the discount rate, linked to penalties for non-performing loans, by 1.25 percentage points to 6%.

These decisions were taken on 22 June at the monetary policy meeting, chaired by Jiří Rusnok, the current CNB governor, and attended by all seven members of the board.  “The interest rate increase is a response to the continued significant increase in inflationary pressures in the Czech economy,” said Rusnok. He also stated that further steps would depend on new information coming in and the CNB’s new forecasts on the further development of the economy. At the same time, the CNB Council informed that it considers the developments estimated in the current May forecasts to entail significant risks for inflation, indicating a further significant tightening of monetary policy, i.e. an increase in interest rates. The CNB Board considers the risks to be higher price growth at home and abroad, a sharp increase in energy prices due to fears of a supply shutdown from Russia, a weakening of the koruna exchange rate, the threat of an anchoring of inflation expectations and developments in fiscal policy. According to the governor, uncertainties include further developments in the war in Ukraine and the future determination of interest rates abroad.

According to Radomír Jač, Chief Economist at Generali Investments CEE, the development of inflation expectations in the Czech economy will be important for the CNB’s decisions in the coming months. “At the moment it is difficult to predict whether in August the Bank Council will express a majority in favour of an interest rate increase, but in any case it can be assumed that the central bank’s new forecasts will recommend a rate increase,” he said. Five of the seven board members voted in favour of all decisions taken at the meeting. Two members, Aleš Michl and Ondřej Dědek, however, voted in favour of unchanged rates. This was Rusnok’s last meeting as governor; his term of office expires at the end of June. The new governor will be board member Aleš Michl, who has already announced that he will propose rate stability at the next monetary policy meeting in August.

Sources: https://zpravy.aktualne.cz/; https://www.ceskenoviny.cz/https://www.novinky.cz/
Sources of images: https://pixabay.com/https://storyset.com/

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