Central bankers have repeatedly indicated that the CNB is likely to send interest rates up, as it did at today’s meeting. Above all, it is a signal that they want to do something against rising prices.
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This step was also expected by economic analysts, according to which the increased basic 2W repo rate at the level of 0.5 percent is still so low that the post-ideal economic start-up cannot even slow down, let alone stop it.
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“Monetary policy is entering a phase of gradual raising of interest rates, which will probably continue,” said CNB Governor Jiří Rusnok. According to him, it is not possible for the economy to grow at a rate of three to four percent and rates to remain low.
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“It is possible that we will raise rates at each subsequent monetary meeting,” the governor added, adding that the council will decide according to current conditions.
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The decision of central bankers usually does not have an immediate impact, but it will take many months or units of years. The current inflation of 2.9 percent will probably not decrease dramatically.
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The step of the central bankers is to convince the Czechs that prices will not rise so dramatically in the future. Rusnok stated that the CNB observes higher inflation expectations in the Czech Republic.
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Today, we have no doubt that the pandemic and its associated restrictions are in decline.
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“We expect inflation to return to two percent next year,” the governor said. According to him, the positive news is a significantly lower year-on-year decline in economic activity in the first quarter than the CNB originally expected. Unemployment was also lower than expected.
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According to Rusnok, the pro-inflation risks mainly include the outlook for economic growth abroad, which could lead to higher domestic prices. “It is also higher wage growth in the Czech Republic and an increase in regulated prices for next year,” Rusnok added.
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“Today we have no doubt that the pandemic and the associated restrictions are in decline,” Rusnok said. Due to high vaccination and high mortality, the governor believes that the likelihood of the return of significant economic constraints has decreased much.
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However, where the rate increase will certainly be reflected, it will be mortgage prices. Their interest rates rose before the bankers intervened, now they will go even higher. The availability of housing loans will decrease.
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The Czech National Bank is an exception in the normalization of monetary policy between central banks, as, for example, the ECB or the US Fed still keep rates at a record low. So far, only the Hungarian central bank in the region has increased the post-Pidy period.
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