Czech Republic Monetary Policy September 2022

Czech Republic

Czech Republic: The Czech National Bank stands pat again in September

September 29, 2022

At its 29 September meeting, the Board of the Czech National Bank (CNB) left the two-week repo rate unchanged at 7.00%. In addition, the CNB left the Lombard rate unchanged at 8.00% and the discount rate at 6.00%. However, the decision was not unanimous: Two of the seven members voted to hike all rates by 75 basis points.

The Bank decided to stand pat for the second consecutive meeting as it reiterated that the current level of interest rates was already dampening domestic demand. Meanwhile, the Bank expects headline inflation to peak in the coming few months, chiefly owing to increasing gas and electricity prices. As already stated in the summer macroeconomic forecast, it sees inflation averaging 16.5% in 2022.

Looking ahead, the Bank sees both strong upside and downside inflationary risks. A more expansionary fiscal policy and de-anchored inflation expectations resulting in a wage-price spiral pose the main upside risks. On the other hand, the increasing likelihood of a global recession and a stronger-than-expected downturn in domestic demand represent the chief downside risks. The Bank therefore stated that it stands “ready to react appropriately to any materialisation of the risks of the forecast”.

Commenting on the Bank’s decision, Jiri Polansky, economist at Erste Bank, stated:

“As the most likely scenario, we now see the stability of interest rates until February, and then their gradual decline, along with how inflation will be slowing down from this year's peak, which we expect at the turn of the third and fourth quarter. But uncertainty remains higher, both ways.”

The next meeting is scheduled for 3 November.

FocusEconomics analysts are still assessing the latest decision and new forecasts will be released on 4 October.

Author: Massimo Bassetti, Senior Economist

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