Czech National Bank Lifts 2-Week Repo Rate to 1.25% from 1.00%
Developing economies like that of the Czech Republic depend on capital inflows, and these have diminished as a result of U.S. President Trump’s protectionist agenda. Currencies have depreciated, forcing central banks to raise interest rates and counter imported inflation. Today’s Czech National Bank rate increase is the fifth of the cycle, following moves of 20 basis points a year ago and 25 bps each last November, February and June. More tightenings are likely in the second half of 2018. According to a released statement,
Room for an earlier increase in interest rates than assumed by the previous forecast has been created mainly by a deviation in the path of the koruna exchange rate due to global factors. More inflationary factors in the domestic economy have also contributed. Room for an earlier increase in interest rates than assumed by the previous forecast has been created mainly by a deviation in the path of the koruna exchange rate due to global factors. More inflationary factors in the domestic economy have also contributed.
The central bank’s updated macroeconomic forecasts see Czech inflation staying well above the 2.0% target until mid-2019 but ultimately settling back as an appreciating trend resumes. Growth in the year ahead will not be as robust as in the past year. “The main uncertainty is the duration of the global factors which recently caused the koruna to depreciate. Growth in protectionist measures in global trade and an escalation of the USA’s trade disputes with the euro area and other trading partner countries are an additional source of external uncertainty.”
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