Czech National Bank likely to stand pat this week

The Czech National Bank board is set to meet this Thursday for its regular interest rate setting meeting. The Czech economy has been performing much better than the central bank expected; but this was not seen through consumer spending. The better performance was mainly due to exporters. Inflation is behind the projection but wage growth, which the CNB still depends on, has gained strength, noted KBC Market Research report. Therefore, hiking interest rates appears to be a logical step with which the Czech economy should not have an issue with.

The Czech economy can handle a rise in interest rate without issues; however, there are still many reasons for the central bank not to hurry with hiking rates. The key factor might be than a hike in rates might not be seen by the market as an isolated symbolic gesture but as the start of a new cycle of tightening the monetary policy that might definitely not leave the crown untouched, stated KBC Market Research. Given the relaxed ECB policy, the CNB might just further open interest rate differentials and open up room for additional inflow of speculative capital.

Furthermore, the CNB might get its excuse for waiting from the fact that the current higher inflation is also due to many one-off factors, the influence of which would begin to dwindle soon.

“So, on Thursday we could hear the CNB expressing satisfaction with the economic development, see raised eyebrows at the words about real estate prices and feel a little nervousness from the Czech koruna”, added KBC Market Research.

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