Czech Republic Monetary Policy May 2022

Czech Republic

Czech Republic: The Czech National Bank continues its tightening cycle in May

May 9, 2022

At its 5 May meeting, the Board of the Czech National Bank (CNB) decided to raise the two-week repo rate by 75 basis points from 5.00% to 5.75%, marking the eighth consecutive hike. In addition, the CNB increased the Lombard rate to 6.75% from 6.00% and the discount rate to 4.75% from 40.00%. However, the decision was not unanimous: Two of the seven members voted to stand pat.

The decision came as inflation reached 12.7% in March, moving further above the Bank’s 1.0–3.0% tolerance range, as the Russian invasion of Ukraine has added further upside pressures to energy, commodity and food prices. The Bank expects headline inflation to reach almost 15% in the coming few months, and to return close to the 2.0% target only in late 2023. The Bank, therefore, hiked rates again 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 in forthcoming monetary policy meetings “monetary policy may be tightened further” due to significant upside risks to inflation stemming from higher energy, commodity and food prices as well as from prolonged supply constraints and de-anchored inflation expectations. As a result, further rate hikes this year are likely.

The next meeting is scheduled for 22 June.

FocusEconomics analysts are still assessing the latest decision and new forecasts will be released on 10 May.

Author: Massimo Bassetti, Senior Economist

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