Czech Republic: CNB raises rates again in August
At its 5 August meeting, the Board of the Czech National Bank (CNB) decided to raise the two-week repo rate by 25 basis points to 0.75%, marking the second consecutive hike. In addition, the CNB increased the Lombard rate from 1.25% to 1.75%, but left the discount rate unaltered at 0.05%. While the decision was expected by market analysts, it was not unanimous: Four out of the seven members were in favor, but one voted for a 50 basis-point hike and two members voted to stand pat.
The decision to hike rates again largely came amid higher inflationary pressures. The Bank sees inflation rising well above the upper bound of its 1.0%–3.0% tolerance range in the coming quarters, chiefly on elevated food and fuel prices. The Bank’s tighter monetary stance should lead inflation back towards the 2.0% target rate in 2022.
Looking ahead, the Bank’s baseline scenario projects further tightening in H2 as activity continues to strengthen. However, the CNB now sees inflationary risks to be skewed to the downside overall, largely stemming from uncertainty over the trajectory of the pandemic and a potentially faster-than-expected strengthening of the domestic currency amid larger capital inflows.
The next meeting is scheduled for 30 September.