Czech Republic: The Czech National Bank continues its tightening cycle in March
At its 31 March meeting, the Board of the Czech National Bank (CNB) decided to raise the two-week repo rate by 50 basis points to 5.00%, marking the seventh consecutive hike. In addition, the CNB increased the Lombard rate to 6.00% from 5.50% and the discount rate to 4.00% from 3.50%. However, the decision was not unanimous: Five out of the seven members were in favor, but two voted to stand pat.
The decision to hike rates came as inflation reached 11.1% in February, moving further above the Bank’s 1.0–3.0% tolerance range. Moreover, the Russian invasion of Ukraine has sent energy and commodity prices skyrocketing, further stoking inflation. The Bank expects headline inflation to continue rising in the spring months and remain very high in the second half of 2022. The Bank therefore felt it necessary to increase rates to ensure that inflation and inflation expectations return to the midpoint of its tolerance band in the longer run.
Looking ahead, the Bank stated that reestablishing price stability was “now its absolute priority”, amid what it sees as mounting upside risks to inflation stemming mainly from higher energy, commodity and food prices as well as by supply constraints and a less restrictive fiscal policy. The Bank said it would continue to raise rates so that inflation expectations do not diverge from the midpoint of its tolerance range in the longer term. As a result, further rate hikes this year are likely.
The next meeting is scheduled for 5 May.